5 year CD Rates

5 year CD Rates

Typically, a 5 year CD is the longest term offered by banks and credit unions. With this investment vehicle, you will almost always garner a greater annual percentage yield than a certificate of deposit with any other term simply because this requires the longest commitment.

Although your interest rate will be higher, the downside of a 5 year CD is the fact that your money will be locked up for a period of 60 months. If you need to access the funds during this time, you will be required to pay an early withdrawal fee. Additionally, if interest rates increase during the five year period you are unable to take advantage with this money until your current CD expires.

The best time to invest in a 5 year CD is during the peak of an interest rate cycle, or just before rates begin to decline.

To better understand when to invest, let’s take a closer look at a situation from 2008. At this time, interest rates on certificates of deposit were at an all time high. Believe it or not, rates on 5 year CDs were pushing six percent! Those who were knowledgeable enough to invest at this time were able to lock in a high rate before the bank collapse and subsequent decrease in CD rates. So far in 2013 the 5 year bank deposit has been averaging a yield of just 1.30% APY throughout the country.

It does not typically make sense to invest in a 5 year CD during a low interest rate period. The reason for this is simple: you are stuck with the investment even if rates begin to rise. And as noted above, almost all banks impose a penalty for early withdrawal.

Benefits of a 5 year CD

  • Higher rate than other CD products
  • Ability to earn a set amount of interest for a period of 60 months
  • Know your money is safe and insured for five years
  • Low minimum deposit ($0) set by many banks
  • Interest compounded daily or monthly, determined by the financial institution

All of the 5 year CDs listed in our database above are federally insured by the FDIC up to $250,000.