When you want to push the growth of your savings into overdrive, you might consider a certificate of deposit (CD) over a savings account.
A CD is a deposit account that pays a higher interest rate, but you promise to not withdraw the money for a set period of time.
You may have a wide range of options for CD maturity terms -- often ranging from a few months to several years.
Generally, longer maturity terms come with higher CD rates.
So, if you ever consider an extremely short-term CD (such as a 3-month CD), you're likely to be underwhelmed by the interest rate.
If you still want to open a 3-month CD, we surveyed more than 6,000 banks to find the best 3-month CD rates available.
The Best 3-Month CD Rates
Most of the time, the best CD rates come from lesser-known banks.
Usually, these are online banks.
That’s good news because anyone can open an online bank account. All you need is a U.S. mailing address and a Social Security number.
Best 3-Month CD Rates
|Bank||APY||Minimum opening deposit||Early withdrawal penalty|
|TotalDirectBank||2.20%||$25,000||1 month of interest|
|CDBank||2.00%||$10,000||3 months of interest|
|VirtualBank||1.90%||$10,000||All interest earned|
|TIAA Bank||1.85%||$5,000||22 days of interest|
|Popular Direct||1.75%||$10,000||89 days of interest|
Where to Find the Best 3-Month CD Rates
When you go to open a CD at any bank, you’ll see a variety of terms and interest rates offered.
Usually the longer the term of a CD, the more interest you’ll earn.
If you find a short-term CD, such as a 3-month CD, with a high rate, it’s usually part of a promotion and won’t apply if you try to renew the CD.
3-Month CDs vs. Savings Accounts: Pros and Cons
One of the downsides of CDs is that you cannot make a withdrawal from the CD until its term ends.
Depending on your goals, you can flip this around and think of it as a benefit.
By putting your money in a CD, you’re providing yourself with additional incentive to not make a withdrawal from the account.
If you know that you have an expense coming up in three months and you want to make sure that you have money available for it, using a CD might make sense.
It makes it harder to spend the cash while making sure it will be available when you need it.
Low interest rate
The shorter the term of a CD, the less interest it will pay.
The fact is:
You can find high-yield savings accounts that offer the same or better rates as a short-term CD.
This is especially true for 3-month CDs, which is one of the shortest terms available.
If you can earn the same rate or a higher rate without all the additional restrictions, why would you want to open a CD?
Early withdrawal penalties
As we mentioned, if you make a withdrawal from your 3-month CD before the 3 months ends, you’ll have to pay a penalty.
If you run into a financial emergency and need to access your savings, you’ll pay for the privilege if your money is in a CD.
If you keep your money in a savings account, you won’t have to pay a fee if you need to make an emergency withdrawal.
3-Month CDs vs. 12-Month CDs: Pros and Cons
The one benefit of a 3-month CD over a 12-month CD is that you’ll have more liquidity.
You’re not committing your money for an extremely long period of time. So, if you need the money, you'll have access sooner than other CDs.
Lower Interest Rate
The shorter the term of a CD, the lower the interest rate that it will pay.
When you open a 12-month CD, you’ll receive a higher rate to compensate you for tying up your money for a full year.
That can mean you’ll earn a significantly higher rate than you would with a 3-month CD.
Compared to Longer-Term CDs
When you open a CD you’ll have a number of term options available to you.
Some banks offer CDs with terms even shorter than 3-months and it’s possible to find terms as long as 10 years or more.
Short-term CDs have the benefit of flexibility but offer significantly lower rates.
Long-term CDs offer higher rates to make up for their lack of flexibility.
You have to make a decision regarding the amount of flexibility you’re willing to sacrifice in exchange for higher rates.
Interest rate risk
One thing to keep in mind when opening a long-term CD is that there is another potential downside beyond the lack of flexibility.
When you open a CD, your interest rate is locked in. You’ll earn the same amount for the life of the CD. However, the interest rate market changes all the time, so the rates that banks are willing to pay will change over time.
If you open a long-term CD and interest rates begin to rise, the bank will offer new CDs with higher interest rates. However, you’ll continue to earn the lower rate. If you want to upgrade to the higher rate, you’ll need to make an early withdrawal from the CD and pay the associated penalty.
On the other hand, if rates drop, the bank will offer new CDs with lower rates while you continue to earn the higher rate that you locked in. This can make the long-term a significant benefit, as you’ll be earning a much higher rate for a longer period of time.
3-Month CD Early Withdrawal Penalties
When you open a CD, you’re making a commitment to keep your money in the account for the full term of the CD.
If you make a withdrawal from the account before the CD’s term has ended, the bank will charge a fee.
Most banks use the interest you earn in a single day to calculate the penalty. The longer the CD’s term, the more days’ interest you’ll have to pay.
Typically, the early withdrawal fee for a 3-month CD is 30 days’ interest, though some banks will charge as much as the full amount of interest you’d earn.
Because of these penalties, it is possible to lose money by opening a CD.
If you make a withdrawal before you earn enough interest to cover the fee, you’ll have to pay the remainder out of the principal.
However, it is possible to avoid the fee, depending on the situation.
Many banks will waive the fee if you make your withdrawal within a day or two of opening the account. Many banks will also waive the fee if the CD’s owner has passed away or is ruled legally incapacitated.
When Does it Make Sense to Open a 3-Month CD?
There aren’t many situations where opening a 3-month CD makes sense. Often, you can find a higher interest rate from an online savings account.
Even if you find a 3-month CD with a higher rate, the difference is usually so small that it’s not worth the loss of flexibility.
The only time that it may make sense is if you’re building a CD ladder.
A 3-month CD can be the first rung on the ladder as you build into a ladder with longer-term CDs that expire on a regular basis.
Even then, you might want to just keep the money in a savings account and open longer-term CDs as time passes so you can build the ladder the way you want to.
Three months after you open your 3-month CD, the CD will mature. When your CD matures, you have the chance to make a withdrawal or another change to the account.
If you do want to make changes, make sure that you make them quickly.
Most banks will give you 7-10 days from your CD’s maturity date to make changes.
If you don’t do anything, the bank will roll the balance of your CD into a new one with the same term.
Once that happens, you’ll have to wait until the new CD matures. If you try to make a withdrawal before your new CD’s term is up, you’ll have to pay the early withdrawal penalty.
CDs are insured by the FDIC, just like savings accounts. That means that you can feel confident that any money you deposit is as safe as can be.
If you’re depositing close to $250,000, remember that the interest that you earn may drive your balance over the $250,000 limit. If that happens and the bank fails, the FDIC won’t reimburse you for any amount in excess of $250,000.
While it is exceedingly rare that you would need to use FDIC insurance, you should consider opening smaller CDs at multiple banks if you have close to $250,000 to deposit.