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Which CD term is right for you?


CD yields have been climbing for more than a year, making them a much better place to put your savings now. Choosing the best term has become harder, though. Usually, the longer the maturity, the more interest you earn. But that’s not the case right now.

We’re in that odd period of time where returns on CDs of 18 months or fewer are paying more than CDs of two years or longer. If you put the numbers on a graph, they would look like what economists call an inverted yield curve. Instead of the numbers going up at an angle year by year, they are peaking at one year or so and coming back down.

Why? Two related reasons: The Federal Reserve has raised its Fed Funds rate 10 times in 14 months by a total of about 5 percentage points. That has pushed up many rates that banks charge for short-term and indexed loans and, correspondingly, the yields they pay on CDs.

Second, inflation zoomed from a low of 1.6% in March 2021 to a high of 6.6% in September of last year and remained above 5% this April. In response, the Fed has raised its rates to cool down the economy. All of this has had the greatest effect on short-term interest rates, including the kind that banks pay on CDs of 3 months to 1 year or so.

You can see the impact nationally. The average yield on a one-year CD was a measly 0.14% in January 2022, according to Bankrate. You would have done almost as well keeping your money in a high-rate savings money market account. Fast forward to May 10 of this year and the average yield is 1.67%.

Usually, a five-year CD would pay more. But these are not normal times. The average yield on that maturity is lower, 1.22%, Bankrate found in its national survey. In fact, the one-year CD has been paying more than a five-year CD since October of last year.

If you follow U.S. Treasury bills and bonds, you will find a yield curve with a similar inverted shape. And it’s likely to stay that way for some time until the Fed brings inflation back down to its annual target level of 2%.

What can you do now with your savings? Shop for the best deal on a short-term CD. Tropical Financial has various term options plus occasional special offers.

To find the latest returns, visit our CD rates page.




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