When you think about certificates of deposit (CDs), you’re probably thinking about locking away you’re money for a long time to earn a high interest rate.
That’s why might not consider a 1-month CD -- some people might be surprised that they even exist.
The truth is:
There isn’t much of a reason for it when 1-month CD rates are not as high as high-yield savings rates -- you earn more interest while the money can be withdrawn at any time without any penalties.
If you do open a 1-month CD, you probably have a very specific reason for doing so.
See where you’ll find the best 1-month CD rates and compare them to other types of popular deposit accounts, including online savings accounts and CDs with longer maturity terms.
Where to Find the Best 1-Month CD Rates
Because the demand isn’t very high for 1-month CDs, many banks and other financial institutions don’t offer CDs with maturity terms of only one month.
Banks don’t have much to gain from this offering.
You can definitely find 1-month CDs if you looked around.
Best 1-Month CD Rates
|Bank||APY||Minimum opening deposit||Early withdrawal penalty|
|VirtualBank||2.00%||$10,000||All interest earned|
|Presidential Bank||1.00%||$1,000||30 days of interest|
|Colorado Federal Savings Bank||0.60%||$5,000||1 month of interest|
Generally, the top 1-month CD rates will struggle to pay out more interest than market-leading deposit accounts -- notably savings and money market accounts. Even many interest checking accounts will offer better interest rates.
1-Month CD vs. Savings Account
You might wonder why would someone think about a 1-month CD when a savings account appears to be the smarter option. Compare them to find out.
Helps to resist spending temptation
CDs are designed to reward depositors with high rates while the deposits are not supposed to be withdrawn until the maturity term has elapsed.
If the money is withdrawn before the month is over, there is an early withdrawal penalty -- you could end up losing money.
This fear of losing your money could discourage you from using it for impulse spending.
Additional deposit insurance
A quick 1-month CD could offer temporary FDIC deposit insurance if you’re holding a large amount of funds at other banks already and you need a place to put excess funds for a short period of time.
(This advantage applies only if you open the 1-month CD at a separate bank.)
Low interest rates
As mentioned already, 1-month CD rates are likely to be lower than most other accounts that pay interest.
It’s not the best place to put your money when better options exist.
Not cheap to withdraw early
When it comes to 1-month CDs, the early withdrawal penalty can easily be all of the interest earned or more
Because of the relatively low interest rates, it may not be a big deal.
1-Month CD Early Withdrawal Penalties
Like with most traditional CDs, a 1-month CD does come with an early withdrawal penalty, which is charged when you want to take the money out before a month’s time.
Based on our research, the two most common penalty formats for 1-month CDs are:
- All interest earned
- 1 month of interest
Again, if you lose all the interest earned, you’re probably not missing out on much -- especially because the rate is probably very low.
The worse part:
If the early withdrawal penalty is 1 month of interest, you’re going to end up losing principal.
That is, you actually end up with a lower balance than when you opened the account because you haven’t earned 1 month of interest, but that’s how much you’re losing.
Once more, the loss may not be much.
Reasons to Use a 1-Month CD
With more attractive alternatives, the reasons for using a 1-month CD are very limited.
Test out the bank
A 1-month CD is an extremely short-term commitment that you could use as a way to test out a new bank -- primarily to review factors such as:
- Fund transfer times
- Online and mobile banking
- Customer service satisfaction
An added safe haven
If you’ve got excess funds over $250,000 at another bank already, you might consider moving that money to another bank to ensure that all your deposits are FDIC-insured.
With a 1-month CD, you can set the excess funds aside for safekeeping on a temporary basis (you’re planning to need those funds shortly, such as in the purchase of a home).
Generally, even the best 1-month CD rates aren’t worth considering if you intend to maximize the interest earnings of your money.
There are much better options without the withdrawal restriction.
If you’re going to open a 1-month CD, there has to be a very specific reason.