Updated January 10, 2016
If you are looking for a better yield on your savings, a high rate CD (certificate of deposit) offered by an online bank could be a good option. Internet-only banks offer much better interest rates than traditional banks. For example, a 12-month CD at Bank of America would require a $10,000 minimum deposit and would pay only 0.07%. At an online bank, you could earn 1.35% with only a $2,000 minimum deposit. (If you would rather get a savings account with no time restriction, look at the best savings accounts).
This list is updated monthly. Here are the accounts with some of the best CD rates:
- 1-Year CD (from a bank): Synchrony – 1.25% APY, $2,000 minimum deposit
Synchrony offers a wide range of online savings and CD options. With only a $2,000 minimum deposit, you can enjoy 1.25% for one year. The deposit will be FDIC insured up to the legal limit of $250,000 per depositor per institution. Synchrony used to be a part of GE. It is now a publicly traded company that raised money online (without expensive branches) to fund its store credit card product offering. You might even have a synchrony credit card and don’t even know it.
- From 1 year to 10 years: Discover Bank – 1.15% – 2.20%; $2,500 minimum deposit
Discover is known for cash back credit cards. However, Discover has also quietly built a leading internet bank that offers checking accounts, savings accounts and CDs. Discover has invested in a mobile banking app (not found with other companies, like Synchrony) and strong on-shore customer service. Although Discover does not always have the highest rate, it is very close (within basis points) across all durations. If customer service and digital tools (like apps) are important to you, Discover is an excellent consideration. Note: you can even get a CD rate with a duration as short as 3 months. However, you would be better off opening a high yield savings account if you plan on saving the money for less than a year.
- 1-Year CD (from a credit union): PenFed – 1.36% APY, $1,000 minimum deposit – must become a credit union member
PenFed is a credit union that offers very competitive interest rates. You need to join the credit union in order to benefit from their products. If you have a military or government affiliation, it is free to join. Otherwise, you would need to join an organization like Voices for America’s Troops, which costs $14.00. Once you are a member, you can open PenFed products (including this certificate) online. Your deposit would be insured by the NCUA, which is the National Credit Union Administration. There is a $1,000 minimum deposit for the one-year certificate.
- 2 Year CD: Synchrony – 1.45% APY, $2,000 minimum deposit
Synchrony makes a second appearance on our list with a 2-year CD. Although this isn’t the highest rate we could find (1.50% from eLoan is hard to beat), it does have a lower minimum deposit requirement of $2,000. So, if you don’t have the $10,000 required, consider Synchrony.
- 2-Year CD: EverBank – 1.52% APY, $5,000 minimum deposit
You need a higher minimum deposit in order to qualify for the higher interest rate at EverBank. If you have $5,000 to deposit, 1.52% is the highest rate we were able to find at a two year term. EverBank is based in Florida.
- 3-Year CD: Ally Bank – 1.50% APY, no minimum deposit (1.55% at $5,000 and 1.60% if you have $25,000)
Ally Bank has a long history of paying some of the best rates online. If you can part with your money for three years, you can earn 1.50% (and up to 1.60% if you have at least $25,000). Even better, Ally often gives preferential renewal rates to customers. Although this is not a guarantee, Ally has been doing it for a long time – which means Ally will reward long-term customers with even better rates.
- 5-Year CD: EverBank – 2.28% APY, $5,000 minimum deposit
Once again, EverBank has the highest rate we could find. At 2.28%, this is one of the highest CD rates on the market. Just like the other terms, EverBank does require a minimum $5,000 deposit.
3 Questions To Ask Before You Open A CD
1. Should I just open an online savings account instead?
With a CD, the saver and the bank make stronger commitments. The saver promises to keep the funds in the account for a specified period of time. In exchange, the bank guarantees the interest rate during the term of the CD. The longer the term, the higher the interest rate – and the higher the penalty for closing the CD early. With a savings account, there are few promises. You can empty the account without paying a penalty and the bank can change the interest rate at any time.
If you have a high level of confidence that you do not need to touch the money for a specified period of time, a CD is a much better deal. However, if you think you might need to use the money in the next couple of months, a savings account is a much better idea.
You can earn a lot more interest with a CD. Imagine you have $10,000 and know that you do not need to touch the money for two years. In a high-yield savings account earning 1.10%, you would earn $221 over two years. If you put that money into a 1.50% CD, you would earn $302. Given the ease of switching to an online CD, the extra interest income is easy money.
2. What term should I select?
The early withdrawal penalties on CDs can be significant. On a 1-year CD, 90 days is a typical penalty. And on 2 and 3 year CDs, a 6-month penalty is common. The impact of the penalty on your return can be significant. If you opened a one-year CD with a 1.25% APY and closed it after six months, you would forfeit half of the interest and earned only 0.63%. You would have been better off with a savings account paying 1.05%.
The worst case scenario is with the longest CDs. 5-year CDs usually have a one-year penalty for taking out funds early. If you open a 5-year CD and close it quickly, you could actually end up losing money.
Given the early penalties, you need complete confidence that you will not need to withdrawal the money early. Ask yourself this question: “do I have 90% confidence that I will not need access to the cash during the CD term?” If you don’t have confidence, go for a shorter term or a savings account.
3. Should I consider my local bank or credit union?
The interest rates shown in this article are all from online banks that offer products nationally. Our product database includes traditional banks, community banks and credit unions. If traditional banks offered better rates, they would have been featured in this article. The internet-only banks have dramatically better interest rates. That should not be surprising. Because internet-only banks do not have branches, they are able to pass along their cost savings to you in the form of higher interest rates.
However, you can always visit your local bank or credit union and ask them to beat the rates listed in this article. The chance of getting a better deal is extremely low (remember that Bank of America is only paying 0.07%), but you can try.
How To Find The Best Account
If you don’t find an account that meets your needs in this article, you can use the MagnifyMoney CD tool to find the best rate for your individual needs. Input your zip code, deposit amount and term. The tool will then provide you with CD options, from the highest APY to the lowest.