High-Yield CDs and How It Works?

Richdash
3 min readApr 15, 2023

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CDs with high yields are great for earning money for a business. The best ones have higher rates of return and more interest.

What are high-yield CDs?

A high-yield CD is a CD with one of the highest interest rates available across financial institutions. What counts as the highest rate varies depending on when you want to invest. In 2022, the Federal Reserve made multiple rate increases.

CD rates are fixed for the term. These CDs, like regular CDs, come with federally insured up to $250,000 per account holder.

Common features of a high-yield CD

Online banks offer high-yield CDs, including certificates of deposit with the promise to pay a fixed rate. They can afford to offer higher rates because they don’t have to maintain branches or branded ATMs.

CD rates earned on certificates of deposit are typically listed as annual percentage yield or APY. This rate is the interest rate that takes into account compounding. (Learn more about APY.)

CDs require a low opening deposit. Some CDs don’t even have a minimum, and some have extremely low percentages because they offer lower rates for the same high yield. Jumbo CDs, on the other hand, typically require an extremely large deposit — at least $100,000 — and most of them offer better rates than high-yield CDs.

Rates: Regular vs. High-yield CDs

CD rates at online banks and credit unions can have yields that are over double the national average. Generally speaking, the longer a CD term tends to be the higher those rates will be, but this isn’t always the case. A bank may focus more on shorter-term CDs instead of more long-term ones.

TIAA Bank offers competitive rates for a three-month deposit and a six-month deposit. Marcus by Goldman Sachs is an option for shorter terms, offering competitive rates for one month and nine months. As of 2018, the Federal Deposit Insurance Corporation has national averages that make all banks available in comparison.

High-yield CD vs. High-yield Savings

CDs aren’t the only investment product that offers high yields. You’ll also find high-yield savings accounts, which tend to offer lower rates than high-yield CDs. You can also get similar rates with a regular savings account as opposed to a CD as well. Here’s how they differ:

CDs are considered “high risk”, meaning you cannot make any withdrawals until the term expires. If you withdraw before all terms have expired, there is usually a penalty associated with doing so.

Savings account limits vary by institution, but there is some agreement on what types of usage do/don’t count. Withdrawals through ATMs don’t factor into this limit, while online transfers or deposits do.

The Bottom Line

As a bank customer, you probably have plenty of CDs available to you. It’s easy to overlook other banks if you’re primarily banking with one institution. When comparing CD rates from other institutions it may be worth considering moving your funds if your primary bank doesn’t offer high-yield CDs.











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Richdash
Richdash

Written by Richdash

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