New York Banking Rates

Why New York CD Rates Depend on the Term Length

So you’re going to open a new CD account and want the best rate–how do you go about getting it? First, slow down because there’s more to a certificate of deposit than just the interest rate. In fact, the “best rate” really depends on the term of your CD. Just because one bank’s 2-year CD rate is higher than a 6-month rate at another bank doesn’t necessarily mean it’s better. Here’s an explanation of how term lengths and New York CD rates are related and what you should know in order to get the best rate on your account.

How CD Rates Work

A certificate of deposit (CD) is much like a savings account, but with a couple of major differences. While a savings account is completely liquid and allows you to deposit and withdraw money as you like, a CD requires you to commit to a deposit length ranging from a few months to several years. During this time, you are not allowed to withdraw any funds without paying a significant penalty.

Why is this the case? Banks rely on deposits as a source of funds to lend out to borrowers, and lending money allows banks to collect interest as revenue. That means the more money a bank has in deposits, the better.

CDs are a way for banks to guarantee that some money will be available for a specific amount of time. To encourage customers to invest in CDs, financial institutions generally offer higher interest rates on them as opposed to savings accounts. In fact, the longer the deposit term, the higher the rate.

Interest Rates for Various Term Lengths

That’s why it’s important not to judge a CD account solely on the rate–you have to consider the term length, too.

When looking for the highest CD rates, first decide how long you want to invest. A 6-month CD will have a slightly lower rate, but you won’t have to wait very long to access your money again. If you’re not that concerned about liquidity, a 2-year CD will provide a higher rate in exchange for a longer deposit period. Once you decide, you can research rates for that term and learn what range is considered competitive for a particular amount of time.

When you decide on the term length of your CD, be sure to view rates from a variety of financial institutions before opening an account. There are a lot of CD accounts available in New York, but not all of their rates are equal.