'Special' CD Rates Have Flooded the Market. Only Some Are Good Deals

Over the last six to eight months, my inbox has been flooded with CD offers. The offer is usually headed with "Competitive APY" followed by the bank's best CD deal. Most of the time, these are short-term CDs with unusual terms (like 7 months) and an APY that's "x" times the national average. Sometimes the APY is a good deal. More often than not, it's a mediocre rate in disguise.

As of Feb. 2, 2024, the best short-term CDs (those with terms 12 months or less) are between 5% and 5.5%. Any rate below that range is likely mediocre, unless the term is longer than 12 months (more on that below).

To be sure, some CDs pay out above 5.5%. But read the fine print carefully. Oftentimes, these CDs have restrictions that make them less lucrative than they appear at first sight.

Why some CD rates aren't as good as you think

The most common limitation is on your deposit. Sometimes, you'll see a CD boasting a truly unusual APY, like 6%. But it often comes with a maximum deposit that's lower than what you'd normally find in a CD.

For instance, Financial Partners Credit Union has an 8-month CD with a 6.50% APY. That sounds great, until you realize the maximum deposit is $5,000. Still not bad, except you also have to live in certain counties of California to qualify.

That's another point worth emphasizing. If you get a great CD offer from a credit union, you likely have to become a member to apply. Your eligibility may depend on certain geographical factors, like residency in a state or country, or it could depend on your employment at certain companies.

On the flip side, you may see a great or competitive CD rate with a large minimum deposit to apply. For instance, Total Direct Bank has a 3-month CD with a 5.56% APY, but the minimum deposit is $25,000. That's fine if you want one CD and have $25,000 to invest. But if you don't -- or you want to build a CD ladder -- you might be out of luck.

What to look for in a long-term CD

In today's rate environment, long-term CDs (those with terms longer than 12 months) will have less lucrative APYs than shorter terms do. But the difference isn't enormous.

For instance, as of Feb. 2, 2024, the best 18-month CDs continue to pay at or above 5%. Even some 2-year CDs are paying out at 5%. For example, Tab Bank currently has a 2-year CD with a 5.00% APY (it also has an 18-month CD with a 5.13%). While these 5% deals on long terms are becoming fewer, you still have some time to lock into one.

After 2-year terms, a good CD deal is going to be in the 4% to 5% zone, with most of the best offers landing somewhere near 4.5%. If you're looking at a long-term CD with a rate below 4%, it's likely not the most competitive APY you'll find.

All things considered, many of today's CDs have higher rates than they did in years past. But if you're looking for the best CD deals -- and you're not loyal to one bank -- be sure to compare CDs first. Everyone has their own "special" rates, but only a few have exceptional ones.