The Best 5-Year CDs Offer Good Rates. But They’re Not Good Enough to Make Sense Right Now, Experts Say

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Interest rates have made a historic rise this year, and there aren’t yet signs of slowing down.

A rising rate environment is great for earning variable interest on your savings or taking advantage of short-term fixed rates, so you can take advantage of higher interest in the future. But now is not the time to lock in a five-year CD.

“If you lock in for five years at the best interest rate today but the Consumer Price Index and inflation continue to go up, over the next [few] years you will have lost significant purchasing power,” Cady North, a certified financial planner and founder of North Financial Advisors in San Diego. “That’s the risk you take by locking in an interest rate for a longer period of time.” 

Today, the average five-year CD term already earns nearly 4% APY, based on our best CD rates. But five years is a long time, especially when five-year terms were earning under 1% just a few months ago. By locking in today’s rates, you’ll risk missing out on a potentially better APY in the future.

Here are the best five-year CD rates today and when you should consider adding a long-term CD to your savings strategy:

Best CD Rates for November 2022

Bank5 year apyMinium Deposit
Bread Savings (formerly Comenity Direct)4.75%$1,500
CFG4.60%$500
Sallie Mae4.55%$2500
Synchrony Bank4.30%$0
Capital One4.25%$0
Discover Bank4.25%$2500
American Express National Bank4.25%$0
Barclays Bank4.25%$0
Ally Bank4.10%$0
Goldman Sachs Bank USA3.80%$500
TIAA Bank3.45%$1,000
Live Oak Bank2.00%$2500

Note: The APYs (Annual Percentage Yield) shown are as of November 28, 2022. The APYs for some products may vary by region.

Should You Invest in a 5-Year CD?

Longer CDs generally offer higher interest, but a few extra dollars annually isn’t worth the drawbacks for most savers today.

Here’s why: Locking in a five-year CD rate means you’ll miss out on the bigger returns banks will likely offer in the near future. And once you open a CD, you can only move your money out before the term ends by paying a withdrawal penalty. This penalty can vary, but is usually a portion of your interest earned.

Even if you have money you know you won’t need for five years or more, it’s best to consider other options besides a five-year CD, says Jeb Jarrell, certified financial planner and founder of Plentiful Wealth, a financial planning firm in Ashland, Kentucky. 

Shorter-term CDs, Money market accounts, and high-yield savings accounts may not offer rates as high as a five-year CD today, but you’ll maintain greater access to your funds and can take advantage of rising rates.

For example, say you had the option between a high-yield savings account earning 0.50% APY and a five-year CD earning 0.80% APY one year ago, when rates were extremely low. If you chose the CD option then, you’d still be earning that 0.80% APY today. But if you chose the high-yield savings with 0.50% APY then, you may now earn closer to 2%, since rates on those accounts are variable and have increased. Even though the five-year CD’s interest rate seemed like the better option then, their long-term value depends on what rates will do in the future. 

“Chasing yield isn’t always the best, because if you had left your money in a high-yield savings account, feasibly your interest rate in year three will be twice than what the [five-year] CD was,” says North. 

READ MORE: Weekly average CD rates for the week of October 31, 2022

Pros and Cons of 5-Year CDs

Five-year CDs offer a guaranteed, fixed return in exchange for you being willing to set your money aside for a while. Fixed interest rates can be beneficial if rates drop, or a drawback while rates are rising. Here are more pros and cons to consider before opening a long-term CD:

Pros

  • Higher interest rate compared to some other savings options

  • Can be useful to lock in a rate when interest is falling

  • FDIC-insured deposits

Cons

  • No liquidity for five years

  • Fixed interest rate can be less valuable in a rising rate environment

  • Withdrawal penalty if you take money out before maturity

5-Year CDs Compared to 1-Year and 3-Year CD Rates

Here’s how shorter CD terms stack up against five-year CDs today.  

CD rates are rising!
The Fed just raised interest rates again, which means better returns on CDs. Consider a short-term CD to get the most from your savings today.
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1-Year CDs

If you want to lock in a solid interest rate for a shorter time commitment, one-year CDs are a solid pick. Rates on shorter-term CDs are, on average, less than longer-term options, but they are better for maintaining liquidity, especially as rates rise.

The good news is that since one-year CDs mature within a year, you’ll have more flexibility compared to three- and five-year terms to roll your funds into a new CD in the near future. 

However, there are even more flexible options to consider, too,  that may give you more flexibility and variable interest rates — such as a high-yield savings account or an even shorter CD, such as a six-month term. These can be great for money you may need to access quickly or for your emergency savings.

3-Year CDs 

Even if you’re willing to set aside your money for several years in a three-year CD, it’s not the best option for most savers right now — just like with 5-year terms. 

By opening a 3-year CD term, you’ll lock in today’s rates and cannot withdraw without penalty for the entire three-year period. Long-term CDs may be worthwhile when the Federal Reserve changes its language around combating inflation, experts say, but not while rates increase today. 

5-Year CD FAQs

What if I want to withdraw sooner than 5 years?

If you withdraw money before your CD matures, you’ll pay a withdrawal penalty on your principal balance. Usually, the penalty is a few months of interest, but it depends on your bank.

Is my rate locked in for the entire period?

Yes, if you choose a traditional CD, you’ll have a fixed interest rate for the duration of your CD term. When your CD matures, you can roll the money into a new CD that may have a better interest rate.

What are alternatives to CDs?

If you’re looking for an alternative to CDs with more flexibility but still want to earn a return on your principal balance, high-yield savings accounts and money market accounts are good options. Remember to compare rates, required minimum deposits, and other account types before choosing one.