But before you opt for a certificate of deposit, here’s what experts say you need to know first.
Interest rates for certificates of deposit have climbed significantly this year, with at least one credit union now offering more than a 7% annual percentage yield . But it’s essential to look beyond the higher deposit rates — and read what’s behind these promotions.
“The Federal Reserve raised interest rates at the quickest pace since the early 1980s in an effort to fight inflation and bring inflation back to the Federal Reserve’s long-term target of 2%,” says Joshua Mersberger, Merit Financial Advisors’ regional director and partner in Wisconsin. He adds: “Due to the rapid increase in interest rates, banks have been forced to increase interest rates on CDs to compete with the increase on the rate of return on U.S. government bonds.
That’s because while some accounts require as much as $100,000 to get started, others also limit the amount of interest that can be generated from what’s promised in the promoted rate. So by chasing what may seem to be the best APY, neglecting to review all of the fine print can lead depositors to CDs with lower interest-earning potential, says NerdWallet personal finance expert Elizaberth Ayoola.
Local Government Federal Credit Union: 6.5% APY for a 6-month share term certificate Like with most credit unions, membership is required to access the rate attached to the 6-month share certificate offered at Raleigh-North Carolina-based Local Government Federal Credit Union. In this case, depositors or their family members must be an employee or volunteer of North Carolina’s local government, including both elected and appointed officials.
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