Banking Certificates of Deposit Bank CD Rates What Drives Them—and How to Get the Best Ones By Justin Pritchard Justin Pritchard Facebook Twitter Website Justin Pritchard, CFP, is a fee-only advisor and an expert on personal finance. He covers banking, loans, investing, mortgages, and more for The Balance. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for more than two decades. learn about our editorial policies Updated on June 30, 2022 Reviewed by Somer G. Anderson Reviewed by Somer G. Anderson Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. learn about our financial review board Fact checked by David Rubin Fact checked by David Rubin Facebook Instagram Twitter David J. Rubin is a fact checker for The Balance with more than 30 years in editing and publishing. The majority of his experience lies within the legal and financial spaces. At legal publisher Matthew Bender & Co./LexisNexis, he was a manager of R&D, programmer analyst, and senior copy editor. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article Length of Time Rates in the Economy Other CD Rate Factors Getting the Best Bank CD Rates Photo: Blend Images - JGI/Jamie Grill / Getty Images Certificates of deposit (CDs) are safe places to keep money and earn interest. But what drives bank CD rates—why do they go up and down, and why do some banks offer more than others? There are two primary factors that affect bank CD rates. They are: The length of time until the CD maturesThe current interest rate environment Let's look at these, as well as a few other factors. Length of Time The longer you'll have your money tied up, the higher your rate will be. Check around, you'll find that rates increase as the length of time increases (for example, an 18-month CD will pay more than a six-month CD). This is because the longer you commit to leaving your money on deposit, the more flexibility the bank has to use your money. They are willing to pay you a better rate because they can earn more with your money over a longer time period. Of course, there are surprising exceptions to this rule in uncertain times. Rates in the Economy Current interest rates are also an important factor. That is, if rates happen to be high (or rising), bank CD rates will also be high (or rising). High rates don't just apply to CDs; they also apply to loans that the bank is making with your money. They'll charge borrowers a higher rate, and they can afford to pass more along to you. Banks know that you have plenty of choices. If rates, in general, are high, somebody will be willing to pay you a decent rate on CDs because they can earn more than that by investing or lending the money. As a result, you can expect to see CD rates move more or less with other interest rates. The chart below illustrates the discrepancies in CD rates depending on length. As you can see, the spread remains pretty constant and follows along with general trends in interest rates. Other CD Rate Factors Other factors can influence bank CD rates. For example, you may find that a bank is trying to win some short-term business by offering slightly higher rates. They know that there are people out there shopping for great CD rates, and they hope that once they get a customer in the door, that customer will stay (and bring over additional assets). Another factor is the desired profitability. You may find that credit unions have rates that are slightly higher than bank CD rates. Banks might have to share their profits with investors or pay taxes on them. But, because credit unions are nonprofits, they can afford to offer a little more to members at the expense of higher margins. Getting the Best Bank CD Rates The first way to get the best bank CD rates available is to shop around. You can start with any credit unions or banks with which you already have a relationship. Ask about any specials coming up. Compare them to other banks in your area. You'll often find a great deal. You can also use a brokerage account to shop for CDs. This gives you access to a wider selection of CDs, whereas many banks and credit unions only offer their own products. However, these brokered CDs may not all operate the same, so ensure you understand the terms and potential fees with both your broker and the issuing entity. Use the two main factors mentioned above to your advantage. If you know you won't need the money for a while, lock it up for a longer term that enjoys higher interest rates. It can also help to assess the broader interest rate environment. If you think rates are rising in the near future, a short-term CD will mature quickly enough to allow you to reinvest at those more attractive rates. Of course, it is very hard to predict interest rates and markets, so don't knock yourself out trying to time it just right. Note If you have the freedom to invest for longer than five years, and you don't mind accepting some risk, a CD might not be your best option. If you can handle short-term volatility, investors have historically been able to achieve better long-term returns from riskier investments, like corporate bonds or index funds. Finally, buy in bulk. If you want to get the best rates, sometimes you have to meet certain minimums. If you have your assets spread out at various institutions, you may be missing out on "preferred customer" or "jumbo CD" rates. Find out if institutions offer any advantage to consolidating your assets into a single CD. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. M.Y. Safra Bank. "Higher Rates Through Our Online-Only Bank, MYSB Direct." MyCreditUnion.gov. "What Is a Credit Union?" Securities and Exchange Commission. "High-Yield CDs: Protect Your Money by Checking the Fine Print." NYU Stern School of Business. "Historical Returns on Stocks, Bonds, and Bills: 1928-2021."