Will a High Credit Score Help You Score a Higher CD Rate?

A pot of change with a plant growing out of it
A pot of change with a plant growing out of it

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Your credit score is a number that's worth paying attention to. The higher that number is, the more likely you are to get approved to borrow money. And once approved, a higher credit score could lead to a more favorable interest rate on a loan. The result? Lower monthly payments.

Having a higher credit score could also make your life easier in other ways. If you're looking to rent a home, for example, a landlord might favor you over an applicant whose credit isn't as solid.

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But there's one financial area where having a high credit score won't really benefit you. So it's important to keep your expectations in check.

Your credit score won't impact your CD rate

A lot of people are interested in opening certificates of deposit (CDs) these days because rates are so attractive. But even if your credit score is outstanding, it generally won't result in a higher CD rate.

The reason? Your credit score really only matters in situations where you're looking to borrow money, such as if you're taking out a personal loan or applying for a credit card you'll charge expenses on. With a CD, you're not borrowing money. Rather, you're putting money you already have into the bank. So you should be eligible for the same CD rate regardless of what your credit score looks like.

Of course, having great credit might indirectly affect your ability to open a CD. A high credit score generally means more affordable borrowing. So if you're paying less for a car loan or mortgage because your strong credit made you eligible for a better borrowing rate, then you may have an easier time freeing up cash to put into a CD in the first place. But the rate you're eligible for is based on what your bank is offering, not your credit score.

How to snag the best CD rate possible

If you're going to commit to a CD, you want the best rate you can get. Say you have $5,000 to put into a CD. A 12-month CD with a 5% APY will give you $250 in interest. A 12-month CD with a 5.10% APY will give you $255. And while an extra $5 isn't exactly a life-changing sum of money, why not get that extra if you can?

But your credit score won't be your ticket to a higher CD rate. Instead, the best way to get the highest rate is to shop around at different banks and compare the products they have available.

These days, you're likely to find that shorter-term CDs have higher rates than longer-term ones. A 12-month CD, for example, will generally have a higher APY than a 36-month CD, and the reason is that CD rates are expected to fall later this year if the Federal Reserve starts to implement interest rate cuts.

Your credit score is a number worth keeping tabs on and improving as much as possible. But even if you have perfect credit, it may not result in more interest earnings from a CD. To get the best CD rate, you may have to do your fair share of legwork to research rates with different banks. But it's worth making that effort for a larger payday.

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