Banking » Compare Banks » 3-Month CD vs 1-Year CD: Compare Rates
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3-Month CD vs 1-Year CD: Compare Rates

1 Year CD offer much higher rates than 3-Month CD. Compare online, traditional bank and credit unions rates, minimum deposit and penalties.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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As an investor, one of the key considerations when choosing a certificate of deposit (CD) is the term length. Two popular options are the 3-month CD and the 1-year CD, both of which offer competitive rates and are widely available from banks and credit unions.

However, there are differences in CD rates and early withdrawal fees that investors need to consider before deciding which option is best for them.

In this article, we will compare the features of 3-month CDs and 1-year CDs, including interest rates, early withdrawal penalties, and other factors to help investors make an informed decision.

3-Month vs. 1-Year CD Rates: Comparison

According to the principles of CDs, investors can expect higher returns when they commit their money for a longer term and have less flexibility. Therefore, many banks and credit unions offer higher rates for 1-year CDs than for 3-month CDs, as the former requires a longer commitment.

It is important to note that some financial institutions may not offer 3-month CDs as they prefer customers to invest for a longer term, providing them with a steady source of funding for a certain period, ranging from a few months to several years.

When comparing the rates for 3-month and 1-year CDs, the largest rate differences are typically found among banks such as Discover, Synchrony, Bethpage Credit Union, and Ally Bank. On the other hand, larger banks like Chase and Citi often offer “special CDs” for the short term, which can lead to higher rates for 3-month CDs.

When it comes to minimum deposits, most banks and credit unions require at least $1,000, which is quite reasonable as a minimum deposit for most depositors.

Financial Institution
3-Month APY
1-Year APY
Min Deposit
0.25%
4.80%
$0
N/A
4.90%
$0
2.00%
4.95%
$2,500
N/A
4.20%
$1,000
N/A
4.95%
$2,500
4.00%
5.00%
$1,000
N/A
5.00%
$2,500
5.30%
5.30%
$1,000
5.38%
5.40%
$1,000
5.40%
5.00%
$1,000
N/A
5.15%
$2,500
3.00%
4.50%
$0
N/A
4.90%
$500
5.25%
4.95%
$25,000
0.05%
2.00% – 3.00%
$500
4.50%
4.30% (13 months)
$1,000
2.00% – 2.00%
2.00%
$1,000
N/A
4.00%
$0
0.50%
4.55% (11 months)
$250
2.25%
4.00%
$50
2.75% – 2.80%
4.80% – 4.85%
$1,000
1.00% – 2.50%
1.00% – 4.00%
$250

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Compare 3-Month vs. 1-Year Early Withdrawal Fees

In the event of withdrawing funds from a CD before the end of its term, a bank or financial institution may impose an early withdrawal fee as a penalty. Even though 3-month and 1-year CDs are typically considered short-term investments, it is advisable to review the early withdrawal fees to avoid unexpected charges.

Ultimately, the fee for 1-year CD withdrawal is higher compared to 3-month CD, and we can see it on many financial institutions such as Discover, Merrick Bank, Chase and TD Bank. However, some banks and credit unions offer the same early withdrawal fee for both terms, which is good for those considering putting their money in a 1-year CD. They include Citibank, Ally, Synchrony, and Navy Federal credit union.

It is important to note that the penalty for early withdrawal generally does not exceed the interest earned on the CD. For example, if the penalty is equivalent to 1,800 days of interest but you withdraw your funds after only 100 days, the penalty will typically be limited to 100 days of interest in most financial institutions.

Financial Institution
3-Month CD Penalty
1-Year CD Penalty
90 days of interest
90 days of interest
N/A
3 months interest
3 months interest
6 months interest
N/A
365 days / 30% of dividends (The lower)
N/A
90 days of interest
25% of total interest earned
25% of total interest earned
N/A
90 days of interest
Fees, based on the amount
Fees, based on the amount
Fees, based on the amount
Fees, based on the amount
Fees, based on the amount
Fees, based on the amount
N/A
100% of interest earned
60 days of interest
60 days of interest
N/A
180 days interest
90 days of interest
180 days of interest
90 days of interest
90 days of interest
90 days of interest
180 days of interest
90 days of interest
N/A
270 days interest
60 days of interest
60 days of interest
90 days of dividends
90 days of dividends
90 days of dividends
90 days of dividends
3 months of interest
6 months of interest

Should I Consider a 3-Month or 1-Year CD?

Choosing between a 3-month CD and a 1-year CD depends on your investment goals and financial situation. Here are some scenarios where a 3-month CD may be a better option than a 1-year CD:

  • Short-term savings goal: If you have a short-term savings goal, such as saving for a vacation or a other event, a 3-month CD can be a good option. In most cases, it allows you to earn a higher interest rate than a traditional savings account while still giving you access to your funds within a few months.

  • Uncertain future needs: If you have uncertain future needs, such as a potential job change or a move to a new city, a 3-month CD can be a good option as it provides you with more flexibility than a 1-year CD.

On the other hand, here are some scenarios where a 1-year CD may be a better option:

  • Stable financial situation: If you have a stable financial situation and do not anticipate any unexpected expenses or income changes, a 1-year CD can be a good option as it provides a guaranteed return and reduces the temptation to withdraw funds before the CD matures.

  • Falling interest rates: If you expect interest rates to fall in the near future, a 1-year CD can be a good option as it allows you to lock in a higher rate for a longer term before rates decrease.

 

Compare CD Rates

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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