Best 2-Year CD Rates for December 2023

Certificates of deposit allow savers to earn a higher interest rate by agreeing to keep their funds in a special bank account for an agreed upon time period. In essence, banks are willing to pay more on CDs than savings and money market accounts because your CD balance represents money they can count on and that incurs little administration costs since there is almost no activity on CD accounts.

What the consumer trades off for higher earnings is a written commitment to keep the funds on deposit for the CD's full term. This means just one deposit is made at the outset, and no withdrawals are made until the CD matures.

Of course, there is an escape hatch should you find you desperately need early access to the money. But exercising this option will cost you an early withdrawal penalty, and you might pay dearly.

CD terms can range from a week to 10 years, but the most common terms run from three months to five years, with 2-year certificates being a popular choice.

In theory, financial institutions are willing to pay a higher interest rate on longer-term CDs, because they can count on the money for a longer period. However, sometimes shorter-term CDs pay a better rate than longer ones, such as when banks and credit unions expect interest rates to drop in the future.

Your savings goals and your available funds will help determine whether you should open a CD, and if so, what term you should choose.

Two-year CDs represent a mid-range length. While shorter CDs are great when you think you might need the money within a year, and long terms like five years are a good way to lock in a high interest rate when it seems interest rates will be declining, 2-year certificates represent a balance between duration and accessibility.

If you're saving for a large purchase like a house, car, or boat—or maybe even a big trip—or will be making tuition payments for your child in the next couple of years, 2-year CDs are a good choice. They include a safeguard against you accessing the funds willy-nilly, while not keeping your funds locked up for too many years.

Two-year CDs may also be appealing when the future of interest rates is uncertain. Interest rates are impossible to predict, but sometimes their direction is widely expected. When the rate environment is very uncertain, however, 2-year CDs strike a balance between knowing you'll have a good rate for the foreseeable future and getting access to your funds thereafter if rates go up or you need your money for something else.

Lastly, many CD ladders involve a 2-year CD. CD laddering is a strategy that enables savers to capitalize on the higher rates offered by long-term certificates but with access to some of your funds sooner (often, once every year). To complete a 5-year CD ladder, you will need at least one 2-year certificate.

Certificates of deposit have long been a staple of traditional brick-and-mortar banks. And in times past, the only place a customer would consider opening a CD was where they already banked.

But the internet has changed all that, with savers now able to open a CD online at hundreds of banks and credit unions. You can now research rates much more easily by going online.

As a result, traditional banks have been given a run for their money on CDs, with online-only banks and credit unions often offering the best-paying certificates. The reason credit unions often pay better than banks is due to their nonprofit nature and consequent desire to pass benefits onto their member customers.

For online banks, it's their low overhead expenses—they don't need to operate, staff, and maintain physical branches—that allow them to pay higher deposit rates to attract customers.

There is also a third category of CD institution, and that is the brick-and-mortar bank that also offers banking products online to customers anywhere. Some do so from their existing website, while other banks start up separate online-only subsidiaries, sometimes even with a completely different name and brand.

Fortunately for CD shoppers, it doesn't matter too much whether the top-paying CD you just found is from a bank or credit union, or from a traditional vs. online bank. So long as you ensure that the bank is FDIC-insured (or the credit union is NCUA-insured), your protection as a consumer will be the same. Though a bank may operate only online, carrying the FDIC logo indicates it meets all the same regulatory standards as a physical bank.

As for credit unions, it's good to be open-minded to these as well, as their rates are often among the top-ranking in any CD term, and especially long terms. The one caveat with opening a credit union CD is that you must first become a member of the credit union. This is generally easy and fast. But it may sometimes involve making a donation to an affiliated nonprofit.

When a bank or credit union has a special certificate they want to offer for a limited time, they will often release it as an odd-term product. What "odd-term" refers to is a duration that differs from the conventional terms, such as 1-year, 2-year, 3-year, etc.

Instead, you might see an 11-month CD or even a 29-month CD, for instance. All that's happening here is the institution is trying to differentiate this CD from its regular menu of standard CDs, both as a marketing tool to make the CD stand out and perhaps also as an internal signal to its staff that this is a limited-time CD.

It's wise to pay just as much attention to odd-term CDs as conventional ones because these promotional certificates often offer much higher interest rates. That's also what helps them stand out and draw customers.

Even when you make the most careful financial plans, you can run into something unexpected that challenges your budget and savings goals. While it's true that CDs involve a lock of sorts, prohibiting you from simply withdrawing the funds at will, every CD institution offers an option to access your funds prematurely. This is called an early withdrawal penalty.

Essentially, the penalty is the price you can opt to pay the bank in exchange for cashing in your CD early. While some banks allow you to take out just some of your funds, others require you to remove them all and close the CD.

In either case, the bank or credit unions should spell out how the early withdrawal penalties are calculated. The most common method is to deduct a certain number of months' of interest from your balance before the remaining funds are paid to you. Typically, the longer the original CD term, the more months of interest you'll pay as a penalty.

But buyer beware: Penalty policies vary quite widely, with some even allowing for the penalty to eat into your principal. Even with the best intentions to keep a CD fully funded for the entire term, it's smart to investigate the early withdrawal penalty in advance of committing to any CD, and then only choosing a certificate with a potential penalty you can stomach.