6-Month CD Rates

A CD (certificate of deposit) is a reliable short-term to long-term investment (with account terms ranging from 6 months to 5 years) that provides moderate returns in exchange for a moderate risk. CD accounts are basically cash deposits that yield higher interest rates than typical savings account but lower profits than successful stocks. However, unlike stocks, a certificate of deposit guarantees a return, whereas stocks are considered to be high-risk investments, especially for inexperienced investors. CDs are appealing because they offer a fixed interest rate for a fixed amount of time, and are considered to be some of the safest investments available. The intervals at which interest earned on a CD account is paid depends on the length of the term, with short-term deposits paying interest upon maturity, and long-term deposit typically paying interest bi-annually in addition to a lump sum when the account matures. The following paragraphs discuss the pros and cons of CDs, how to compare CDs, and typical 6-month CD rates in today’s market.

The Pros and Cons of CDs
Pros: All CDs are insured by the FDIC (Federal Deposit Insurance Company), which means that regardless of how much money is invested, the investment can be sure that their money is completely safe and that the investment will earn interest at a consistent rate throughout its duration. Unlike other cash deposits (i.e. – fixed term deposits) most CDs allow the account holder to make early withdrawals in the form of low interest loans that are somewhat similar to 401(k) loans. These early withdrawals/loans can be repaid gradually without greatly compromising the return of the CD.

Cons: Unfortunately, along with the security and guaranteed returns,CDs also have lower APYs (Annual Percentage Yields) than other investment types such as mutual funds and stocks. CDs that have fluctuating or variable interest rates are also subject to even lower returns than may have been originally projected. It is also important to note that 6-month CD rates are always lower than the rates offered on long-term CDs, as the financial institution is unable to utilize the deposit for funding for an extended period of time.

How to Compare CDs
In general, longer CD terms with larger deposit amounts offer higher interest rates and better returns. Thus, 6-month CD rates typically offer the lowest rates of any CD. Aside from the interest rates offered on the CD, it is also important to consider minimum deposit requirements and early withdrawal penalties. Some CDs allow the account holder to withdraw funds without a penalty during specific time windows, and these are usually referred to as “liquid CDs”. Most of the time Internet banks and credit unions offer the highest interest rates on CDs because they have lower operating costs.

Typical 6-Month CD Rates
Typical 6-month CD rates fluctuate greatly from year to year, but currently range anywhere from 0.250% APY to 1.080% APY. CDs that offer lower interest rates typically have a lower minimum deposit requirement, while those that offer interest rates higher than 1.00% APY usually require minimum deposits of at least $1000-$5000. Interest paid on 6-month CDs is usually compounded daily, however it may be compounded monthly, quarterly, biannually, or annually, depending on the financial institution and the specific CD. Although the return rates on CDs are about 2 to 3 times the average return of other no-risk investments, they are nominal in comparison to more aggressive investment strategies like stocks, hedge funds, and mutual funds, and are certainly not considered to be “get rich quick” schemes. Therefore, 6-month CDs would be more suitable as savings instruments than actual investments geared towards profit.

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