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Understanding the DepositAccounts 5-Year Online CD (5YrOCD) Index
The 5-Year Online CD (5YrOCD) Index is intended to provide a representative yield that’s available from today’s 5-year online CDs. The Index is the average yield of ten mature 5-year online CD accounts from well-established online banks. To be included in the Index, the 5-year online CD must have at least two years of history with yields that have remained competitive.
Changes in the 5YrOCD Index over the last two years are tracked and compared to the federal funds target rate and to the yields of 5-year Treasury note. Long-term CD rates are affected more by economic expectations that are often first seen in Treasury note yields than they are by the federal funds rate which is a short-term interest rate benchmark.
Recent Changes in the DepositAccounts 5-Year Online CD (5YrOCD) Index
The average 5-year online CD yield had three straight months of decline, and it’s the largest three-month decline since 2020. From December 1, 2023 to March 1, 2024, the average decreased 14.8 basis points, falling from 3.984% to 3.836%. This average is based on the 5YrOCD Index which is the average yield of ten 5-year online CDs from well-established online banks.
In 2023, the Index fell 9.5 basis points, from 4.044% to 3.949%. This was a major change from 2022 when the Index gained 318.7 basis points. The gains in 2022 turned to declines in 2023 even though the Fed had four rate increases that totaled 100 basis points in 2023. Expectations on future Fed rate changes were the main driver of 5-year online CD yields, and this contributed to the Index decline since the start of 2023.
As can be seen in the 5YrOCD Index chart, online 5-year CD yields have generally followed the federal funds rate. Before November 2022, the Index has always had a sizable lead over the upper limit of the federal funds target range. After the Federal Reserve’s last 75-basis-point rate increase on November 2, 2022, the upper limit started to exceed the Index. In 2023, the Index changed little. After the last four Federal Reserve’s rate hikes in the first seven months of 2023, the upper limit far exceeded the Index. On March 1, 2024, the upper limit exceeded the Index by 166.4 basis points.
The 5YrOCD Index chart also includes the yields of the 5-year Treasury note. During periods of falling rates, the Index has generally exceeded 5-year Treasury yield. The Index had its largest lead over the 5-year Treasury note (121.1 basis points) on April 1, 2020.
In periods before and during rising rates, the 5-year Treasury yield has generally exceeded the Index. When signs in 2021 showed that rates may start to rise sooner than expected, the 5-year Treasury yield started to increase, and its yield overtook the Index on March 1, 2021. That lead mostly held until 2023. For most of the first half of 2023, the Index had been above the 5-year Treasury yield. That changed in the second half of 2023. From July to December, the 5-year Treasury yield has been above the Index. Early in 2024, the 5-year Treasury yield fell a few times to levels below the Index, but that changed in February, and as of March 1, 2024, the 5-year Treasury yield leads the Index by 33.4 basis points.
5-Year CD Rates
5 Year CD rates are among the highest CD rates in the country and offer solid returns for a fixed investment period. The table above lists the best 5-year CD rates at the top and allows you to filter your results based on investment amount and institution location. Click the plus button to the left of the bank or credit union name to view account features and rate history for the 5 Year CD, or 60 Month CD, offered by that particular institution.
5-Year CD Rate History – Average APY (%) Rate Trend over Time
What is a CD?
CD rates, or certificate of deposit rates, represent the annual percentage yield paid by a financial institution as a return on a time deposit made by a depositor. A CD is unlike a savings account in that it is issued for a fixed period of time, before which funds may be disbursed only by way of an early withdrawal penalty. CDs provide a secure way to grow retirement savings at a fixed rate of interest and can be helpful as a hedge against riskier investments in the same portfolio.
How Some People Use 5-Year CDs
Many investors use a CD calculator as a tool to help them decide whether a particular 5 Year CD is a good investment. CD laddering is a strategy used by some investors to turn the high rates achieved with longer term CDs into regular returns. To build a typical CD ladder, you would buy 5 CDs with differing maturity dates – a 1 Year CD, 2 Year CD, 3 Year CD, 4 Year CD, and 5 Year CD for example. After the first year, when the 1 Year CD expires, take the proceeds and buy another 5 Year CD with them. Repeat this process each year until you have 5 Year CDs expiring every year. This strategy helps you to take advantage of the earning potential of the higher CD rates while maintaining liquidity by giving you yearly access to funds (unless you are willing to take an early withdrawal penalty to access your money sooner).
Brokered CDs
Brokered CDs are not the same as direct CDs and come with downsides (as well as benefits) that differ from the CDs listed in the rate table above. Credit union CD rates can at times be higher than bank CD rates, and online banks tend to offer the highest interest rates among banks overall. At FDIC and NCUA-insured institutions, your deposits are covered up to $250,000, including any CDs you buy from the bank or credit union.