7% APY CDs: What you need to know

• The highest CD rate available right now is 9.50% APY, but there are limitations.
• Right now, two CDs are giving at least 7% APY, both offered by local credit unions.
• Some high-paying CDs require large deposits or longer terms.

Banks have been offering competitive CD interest rates for well over a year now. The average interest rate on a 6-month CD is 1.60% APY (Annual Percentage Yield), and the average rate for a 1-year term is 1.77% APY. Many institutions are paying significantly higher rates.

Is a 7% CD rate worth it? Learn more about how a 7% interest rate works on a CD, whether you should bother opening an account with such a high rate, and how to find the best CD rates.

The hunt for CDs offering 7% APY

Right now, there are two California-based credit unions offering at least 7% APY on a CD.

is offering a 7-month California Coast Credit Union Celebration Certificate with 9.50% APY. The credit union's membership eligibility requirements are limited to people who live or work in San Diego or Riverside counties. To open the certificate, you must deposit money that hasn't been stored in the credit union before, and put between $500 and $3,000 in the account.

The offers the Credit Union of Southern California 7 Month Certificate, which gives 7.00% APY. To qualify for an account, you'll need to live, work, attend religious services, or go to school in Los Angeles, Orange, Riverseide, or San Bernardino counties. You can also join by being an employee of a select employer group or by being related to a current member of the credit union. You can put between $1,000 and $7,000 of new money in the account, and you'll need to go to a branch or call to open an account.

There is also at least one credit union, Financial Partners Credit Union, offering a CD paying 6% APY. You may need to meet certain eligibility requirements to qualify.

Understanding interest and market fluctuations

When a CD pays 7% APY, it means you would earn 7% on your balance over one year. Most banks compound interest, which means they pay interest both on the amount you've deposited and the interest you've earned on top of it.

Banks and credit unions can compound interest daily, monthly, quarterly, or annually — and the more often they compound interest, the more you'll earn in the long run. It's common for banks to compound interest daily and pay it into your account monthly, while credit unions typically compound interest monthly.

CDs are attractive because they lock in a specific interest rate for a set period of time. When the Federal Reserve makes decisions about interest rates, banks follow suit. For example, if the Fed cuts rates, financial institutions will quickly lower rates on deposit accounts, like savings accounts and CDs, as well as loan products. If you're locked into a CD, you will continue earning the higher rate as the bank issues new CDs with lower APYs.

Where to look for high-yield APY CDs

While there are only two financial institutions paying at least 7% on a CD right now, there are other banks and credit unions that pay high CD rates.

Important factors to consider before opening a CD

Selecting a CD is an important decision. Here are factors to consider when making your choice:

• Interest rate: Look at the CD's interest rate and how often the bank compounds interest. Find out whether you have to meet criteria to earn the highest rate each month.
• Term length: How long are you comfortable parting with your money? For example, you don't want to open a 5-year CD if you think you'll need the money in one year. Choose a term that matches your financial goals.
• Minimum opening deposit: Some banks don't require any money to open a CD, while others require thousands. Regardless of the amount, make sure you can afford the opening deposit. Some institutions may also limit how much you can deposit.
• Early withdrawal penalties: If you take out money before your CD term ends, you'll likely have to pay a penalty. Find out what the bank's penalties are and decide whether you're comfortable with that risk. If you're worried about early withdrawal penalties, you might prefer a no-penalty CD.

7% APY CD FAQs

Are there really CDs offering 7% APY?

Yes, but not for everyone. There's one CD paying 9.50% APY for balances up to $3,000, and another paying 7.00% APY for up to $7,000, but there are eligibility limitations for both.

Why are 7% CDs often limited or have strict requirements?

CDs lock in an interest rate for a specific period of time. Paying exceptionally high rates on standard CDs can cut into banks' profitability at a time when rates are trending downward.

Are CDs with 7% APY safe?

CDs are a generally safe asset. They are FDIC insured by the federal government for up to $250,000 per depositor, per institution. One risk of a high-interest CD is the early withdrawal penalty if you decide to take your money out before the maturity date.

Should I wait for CD rates to go even higher?

CDs rates likely won't go higher in the near future, but it's impossible to predict. Consider your personal savings goals for the money and your risk tolerance, above all.

Is it better to invest in a 7% CD or a bond fund?

Most bonds, with the exception of Treasury bonds, are not risk-free investments. CDs are insured and provide guaranteed, fixed returns. If you can afford to risk your money for the potential of higher returns, a bond fund may be a better option.

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