Certificates of deposit can be a safe, convenient way to stash savings you don’t need right away. And, while one-year and other short-term CDs get a lot of attention, long-term certificates have a big potential advantage: They let you lock in attractive interest rates for years to come.
CDs sit in a sweet spot between savings and investments. Like savings accounts, CDs are frequently offered by local banks and your principal is backed by the Federal Deposit Insurance Corp.
But CDs have their differences too. Unlike standard bank accounts, CDs require you to commit your money for the duration of the CD’s term. In exchange CDs often pay higher—and sometimes much higher—interest rates than high-yield savings accounts.
Long-term CDs, such as those with five-year terms, can be a great way to assign money for a specific future use, such as a retirement trip or a down payment on a home. They can also be used alongside shorter-term CDs as part of a long-term investment strategy, such as a CD ladder.
Filter the table below to find the best CD rates for your personal investment criteria.
Best 5-year CD rates
Five-year CDs are among the more common CD terms available. Here are some of the top five-year CDs you can find on rate aggregation sites DepositAccounts.com and CDValet.com, which together track hundreds of thousands of rates at 275,000 rates at banks and credit unions all across the country.
- Eagle One Federal Credit Union: 5.12%
- Northwoods Credit Union: 5.12%
- BMO Alto (an online brand of BMO Bank): 4.75%
- Telco Triad Community Credit Union (bump-up CD): 4.75%
- East Texas Professional Credit Union: 4.73%
The best five-year CD yields available today are right around 5%, as the interest rate environment remains high. Although these longer-maturity CDs aren’t as heavily influenced by Federal Reserve rate movements as their shorter-term counterparts, officials’ continued embrace of restrictive policy in response to elevated inflation is propping up yields.
While this makes it more expensive for people and companies to borrow money, it gives savers a good opportunity to lock in high guaranteed returns on five-year CDs, along with FDIC protection.Since five-year CDs are very popular, you can buy one at national banks (although they historically aren’t known for having the best rates, even big banks are offering some attractive CD rates now), your local hometown bank, credit unions and online banks.
When to buy a 5-year CD
Five-year CD rates are likely at or near a peak, according to experts who study the interest rate climate, so if you have money on the sidelines, this could be a good opportunity to lock in a favorable rate. Financial planners also note that there are a few specific instances for which a five-year CD is a great solution.
If you need the money in five years
CDs are a great way to earmark money specifically for future expenses, such as college tuition or a balloon payment on a home-equity loan. Your principal is protected by FDIC insurance, and you can earn a higher rate of interest than you would get if you kept that cash in a high-yield savings account. The early withdrawal penalties banks charge if you decide to tap a CD early also serve as a deterrent to prevent you from tapping those funds before your intended use.
As part of a CD ladder
A CD ladder is a good way to invest your cash if you want to earn a higher return while retaining a degree of liquidity. To build a CD ladder, you would open a series of CDs with maturity dates at set intervals—say, every six months or annually—then continue to roll over each CD at maturity into a new one.
For instance, a five-year CD could represent your long-term horizon in a CD ladder also containing one, two, three and four-year CDs. At the end of your first year, when your one-year CD matures, you would then roll that into a second five-year CD to keep the ladder going, or you could cash out those funds if you needed them at that point.
Strategically, laddering is similar to dollar-cost averaging, or buying stocks on a regular basis rather than trying to time the market. “In that kind of laddering situation, you don’t worry about whether to stay short or go long based on how you think interest rates will evolve, and that often turns out to be not only the simplest but also the most effective strategy,” says Ken Tumin, founder of rate tracking site DepositAccounts.
You expect interest rates to fall
The current interest rate environment is great for savers, but if the U.S. economy slows, the Federal Reserve policymakers are likely to cut interest rates to stimulate the additional growth.
If you think the economy is headed for a downturn within the next five years, locking in a favorable rate today could be a smart move. In this way, long-term CDs offer a distinct advantage over savings and money-market accounts. These accounts’ interest rates are variable, so if prevailing interest rates decline, banks will cut their rates and you will earn less money.
Of course, unless you are an economist, chances are you don’t have a strong conviction about when the next recession will arrive, or where interest rates are going next. While interest rates may continue to drift upward in coming months, most experts believe they are more or less close to their peak, so you will have relatively little to lose by locking them in now.
“Having those CDs locked for a longer duration benefits clients who are a little skittish about the long-term outlook of the markets and the economy in general,” says Dillon Haviland, a certified financial planner at Nashville, Tenn.-area financial planning firm TBH Advisors. “For that five-year maturity, if we have someone who’s a little bit bearish, it might not be a bad idea for them to lock in that time frame just to give them that peace of mind.”
How we picked
To find the best five-year CD rates, we looked at CDs with minimum deposits of $1,000 or less available at member institutions of the FDIC or the National Credit Union Administration, the government agency that oversees and provides deposit coverage for member credit unions.
We focused on fixed-rate CDs because, while some variable-rate CDs had higher rates than ones featured here, the drawback is the possibility that the rate could drop before your CD matures, tying your money up for a lower return. Some of the rates featured here might require opening your CD in person, or be offered by a credit union that offers membership within a certain part of the country, so keep in mind that you might find a great five-year CD rate at a local community bank or credit union near you.
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More about Savings and CD rates
- Best Savings Account Rates
- Best 1-Year CD Rates
- Best 6-Month CD Rates
Meet the contributor
Martha C. White
Martha C. White is a contributor to Buy Side from WSJ.
