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Normally, the longer you tie up your money, the better the yield you get from your CD. Currently, there s relatively little difference in yield between CDs of various maturities. The national average yield for a one-year CD is 0.82 percent, according to Bankrate, and the average yield for a five-year CD is 0.87 percent. High-yielding CDs of all maturities range from 2.5 percent for six-month CDs to 3.65 percent for five-year CDs.
Most investors want to lock in high current yields with a long-term CD if they think interest rates aren t going to rise much further. This probably isn t the time to do that, says Bankrate s chief financial analyst, Greg McBride. The Federal Reserve Board is expecting to raise interest rates another 1.25 percent this year, he said. The Fed has raised its short-term fed funds rate five times this year, lifting it from a maximum 0.50 percent to a maximum 3.25 percent.
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If you re a betting person, get the best rate on a savings account now and wait until the Fed goes into pause mode before locking in yields with a CD, says Ken Tumin, founder of Depositaccounts.com.
3. Treasury securities
Treasury securities, which are IOUs backed by the federal government, also offer good yields. A three-month T-bill yields 3.4 percent, and a one-year T-bill yields nearly 4 percent. Interest from Treasury securities is free from state income tax, but not federal income tax.
Treasury bills, which mature in one year or less, are issued at a discount, much like savings bonds. For example, you may buy a one-year, $10,000 Treasury bill for $9,750 and when the bill matures, the government will pay your $10,000. The profit is your interest. Treasury notes, which have maturities of more than one year and less than 20 years, pay interest semiannually.
You can buy Treasuries from a broker or directly (and for free) from treasurydirect.gov. Most brokerages sell bank CDs as well, and can be a good way to find high-yielding CDs, Tumin says.
One drawback to Treasuries: If you sell your Treasuries before they mature, you may get more or less than the security s face value.
4. Money market mutual funds
A money market mutual fund invests in short-term, high-quality interest-bearing securities, such as Treasury bills. Unlike a bank, which can set a yield for a certain period, money funds can only give you as much as they earn, minus expenses. The typical money fund yields 2.57 percent, according to Crain Data, which tracks the yields on the largest funds.
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