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6 month cd rates

Think there's no such thing as easy money? Guess again.

It may not be glamorous, and it may not promise instant millions, but making the right choices about certificates of deposit (CDs) can earn you hundreds or even thousands of dollars more than the average bank customer with very little effort and no added risk.

Earning this extra money is simply a matter of choosing the CD lengths that are right for you, and then finding the best-yielding CD rates within each category. After that, the beauty of CDs is that they are very passive vehicles - you know in advance how much they will earn and when they will mature. So, in the meantime, you get to just sit back and watch the extra interest pile up.

To help you earn more from your CDs in 2018, the following will show you the best-yielding CDs out of nearly 900 rates tracked by MoneyRates.com in three popular categories, and then offer some tips on how to choose the right CD length for your situation.

Best 6-month CDs for 2018

Here were the top-yielding 6-month CDs as the start of 2018 approached:

Rank

Institution Name

Annualized Yield

1

First Internet Bank

1.41 percent

2

Transportation Alliance Bank

1.30 percent

3

Virtual Bank

1.29 percent

4

Nationwide Bank Jumbo CD

1.25 percent

5

EverBank

1.21 percent

6

Nationwide Bank Regular CD

1.20 percent

7

Valley National Bank

1.10 percent

8

Goldwater Bank

1.05 percent

9 (tie)

Pentagon Federal Credit Union

1.00 percent

9 (tie)

Popular Direct

1.00 percent

According to current CD rates listed by the FDIC, 6-month CD rates pay an average of 0.16 percent annually. That means choosing one of the CDs near the top of this list could earn you an extra $130 or more in interest on a $25,000 CD over the 6-month duration of these CDs.

Best 1-year CDs for 2018

Here were the top-yielding 1-year CDs as the start of 2018 approached:

Rank

Institution Name

Annualized Yield

1

First Internet Bank

1.71 percent

2 (tie)

Able Banking

1.70 percent

2 (tie)

Sallie Mae Bank

1.70 percent

2 (tie)

Transportation Alliance Bank

1.70 percent

5

Virtual Bank

1.69 percent

6

EverBank

1.68 percent

7

State Bank of India

1.66 percent

8 (tie)

Capital One 360

1.65 percent

8 (tie)

Live Oak Bank

1.65 percent

8 (tie)

Synchrony Bank

1.65 percent

According to the FDIC, 1-year CD rates currently average 0.28 percent annually. That means choosing one of the CDs near the top of this list could earn you an extra $350 or more in interest on a $25,000 CD over the course of one year.

Best 5-year CDs for 2018

Here were the top-yielding 5-year CDs as the start of 2018 approached:

Rank

Institution Name

Annualized Yield

1

Union Bank and Trust Company

2.63 percent

2

Capital One 360

2.45 percent

3 (tie)

Goldman Sachs Bank USA (GS Bank)

2.40 percent

3 (tie)

Popular Direct

2.40 percent

5

First Internet Bank

2.38 percent

6

State Bank of India

2.37 percent

7 (tie)

Barclays

2.35 percent

7 (tie)

EverBank

2.35 percent

7 (tie)

Sallie Mae Bank

2.35 percent

10

Virtual Bank

2.34 percent

According to the FDIC, the average 5-year CD nationally pays 0.88 percent annually. That means choosing one of the CDs near the top of this list could earn you an extra $380 or more in interest on a $25,000 CD every year for the next five years.

What CD length is right for you?

As you can see from the above figures, longer-term CDs typically pay higher interest rates than shorter ones. The downside is that it is not always convenient to lock up your money for a longer period. Because of that, before you start comparing CD rates from different banks, the first step is to decide what CD length is right for you.

The following are four aspects of decisions about CD length:

1. Planned cash flow

Cash flow is the timing and magnitude of flows of money into and out of your accounts. Before signing up for a CD, you need to think ahead about whether and when you might need to access that money. For example, if you plan to buy a car in six months, investing the money you've saved in a 6-month CD would allow you to earn a better rate than you'd be likely to find in a savings account, and still have the money available when you need it.

When thinking about cash flow, don't just think about spending needs. Also consider money you have coming available to you, through your job or other sources. To expand on the example mentioned above, suppose you are expecting a sizeable bonus from your employer. This might cover the cash you need for a down payment on a car, and thus let you choose a longer-term CD and earn an even higher interest rate.

In other words, cash flow is the net amount of money coming in and money you will have to spend. If that net amount is positive - i.e., if you have more money coming in than going out - you can typically extend into longer-term CDs because your future inflows will cover your upcoming needs.

2. Early withdrawal penalties

What happens if you need to take money out of a CD before its term is up? Most likely, you will pay an early withdrawal penalty.

The important thing about these penalties is that some are more severe than others, so checking the size of the penalty should be a factor in both comparing CDs and deciding what term length to choose. If all else is roughly equal, you should lean toward the CD with the mildest penalty.

Early withdrawal penalties are especially important if you aren't sure what your cash flow needs are going to be. If you can find a CD with a relatively mild penalty, it might be worth taking the risk of choosing a longer term. The extra interest you earn with long term CD rates might soon more than make up for any potential penalty.

3. Laddering strategies

Choosing the length of a CD is not an all-or-nothing decision. You can invest in a series of CDs with different maturity dates so you will have cash become available at different times, an investment strategy known as a CD ladder. This can be timed to coincide with planned purchases, or just to make cash available at regular intervals so you can be prepared for unexpected needs.

The best way to ladder CDs is to start a series of long-term CDs at different times. For example, if you get an annual bonus, you could put part of that bonus into a 5-year CD every year for the next four years. At that point, you would have cash becoming available from maturing CDs at 1-year intervals, but earning at the higher 5-year CD rates.

4. CD rollover decisions

Choosing CD length should also be an active decision when you have existing CDs maturing. Banks will often default to rolling the proceeds over into a new CD of similar length to the old one unless you instruct them otherwise. This is not necessarily the right decision because your needs now might be different than when you last signed up for a CD. You don't want to miss the potential extra interest available from a longer-term CD, nor do you want to risk not having cash available when you need it.

Besides the possible need to adjust the timing of your new CD, another thing that might have changed since you last initiated a CD is the competitiveness of your bank's CD rates. When you have a CD approaching maturity in a month or two, take the opportunity to shop around and get the best current CD rates you can.

Current CD trends

One final thing to consider as you approach your CD decisions for 2018 is how current trends are impacting CD rates.

Some banks recently have started to raise deposit rates, which might be a reason to consider somewhat shorter CDs or at least a laddering strategy so you will have money available to take advantage of rates as they rise.

Another clear trend is the dominance of online banks over traditional branch-based banks. Most of the highest CD rates listed previously come from online banks, so that is a good place to look when you are rate shopping. After all, CDs are not intended for regular transactions, so there is little need to have your money at a nearby branch if you could get a better rate online.

Finally, if you have a large amount of money to deposit and were expecting to benefit from higher jumbo CD rates, you might be disappointed. Jumbo deposits are those of $100,000 and up, but banks these days are less likely to pay higher rates for large deposits. Of the 30 top CD rates across the three categories listed above, only one of them is specific to jumbo accounts. Figures from the FDIC show that, on average, jumbo CD rates are only about 3 or 4 basis points higher than regular CD rates. The good news is that since you can often get just as good a rate on a smaller CD, this gives you more flexibility in terms of laddering CDs rather than needing to pool all your money into one CD to earn a higher rate.

Making wise choices about the length of your CDs and the bank you use can be an investment of a small amount of time that will pay off for you throughout 2018 and beyond.

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