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Photo by Getty Images; Illustrated by Issiah Davis/Bankrate

A significant advantage of a one-year CD is that it can earn a higher yield than a savings or money market account, in exchange for locking in your funds for 12 months. Because of their relatively short duration, one-year CDs are an attractive option for savers who prefer quick access to their money to make planned purchases or new investments.

A CD typically earns a fixed annual percentage yield (APY), so you’ll be able to determine exactly how much money will be in the account at maturity. Here we’ll provide examples where $2,500 is invested in a one-year CD in accounts that pay national average rates as well as those that earn highly competitive rates, and show you how much money you’ll have when the CDs mature in 12 years. months

The national average one-year CD rate currently has an annual percentage yield (APY) of 1.68 percent. This rate has mostly increased or remained the same since March 2022.

If you were to open a one-year CD today that earns the national average rate of 1.68 percent, the account balance would be about $2,542 when the CD matures in 12 months. This is shown in the following breakdown:

  • Type of calculation: 1 year CD
  • Opening Deposit: $2,500
  • API: 1.68%
  • Total interest after 1 year: About $42
  • Total value of CD after 1 year: About $2,542

Bankrate’s CD Calculator is a quick and easy way to determine how much total interest a CD will earn when you plug in the term, deposit amount and APY.

Savers who shop around can find one-year CD rates that are significantly higher than the national average. For example, dozens of banks and credit unions currently offer one-year CDs that pay 4 percent or more APY. The highest APY available right now is above 5 percent.

An APY of 5 percent, for example, is more than three times the current national average rate of 1.68 percent for one-year CDs. If you were to open a one-year CD today that earns 5 percent, the ending balance in 12 months would be about $2,625. This is shown in the following breakdown:

  • Type of calculation: 1 year CD
  • Opening Deposit: $2,500
  • API: 5.00%
  • Total interest after 1 year: About $125
  • Total value of CD after 1 year: About $2,625

Taking a one-year CD with a much more competitive rate of 5 percent will earn you about $83 more in total interest than going with a CD with the national average rate.

The highest CD and savings account rates are offered by online banks, which have no branch maintenance overhead.

deposit amount: No matter what rate a CD pays, the more money you deposit, the more interest you’ll eventually earn. Some banks require a minimum deposit amount for CDs, which can range from $50 to $2,500 or more.

API: Often referred to simply as the yield or rate, APY indicates how much a bank account earns in a year. The higher the APY, the more interest you will earn.

CD is the length of the word: CD APYs vary based on the length of tenure, which typically ranges from three months to five years. The longer the term, the longer your money will have to earn interest. Although longer terms sometimes mean higher rates, this is not always the case. For example, the national average for a one-year CD is currently 1.68 percent, while the national average for a five-year CD is just 1.24 percent.

The best high-yield savings accounts currently pay APYs just above 5 percent. When choosing between a one-year CD and a savings account, there are things to consider:

Liquidity: If you may need funds for emergencies or other expenses before the end of 12 months, a savings account is a good choice. That’s because you can withdraw money from a savings account at any time, while withdrawing money from a CD before maturity usually carries an early withdrawal penalty.

Fixed or variable rate of return: While the rate on a savings account can fluctuate at any time, the CD rate is usually locked in from the start. If you believe that rates will decrease in the coming months, you may decide that a CD is a better choice. Conversely, sticking with a savings account can be a wise move in a rising rate environment.

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One-year CD rates can vary significantly from bank to bank, with larger banks often offering lower yields and online-only banks typically offering much higher APYs. It pays to shop around for the best rate and use a CD calculator to determine how much you’ll have in your account when the CD matures in 12 months.

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