Updated May 11, 2017
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 1.40% with only a $2,000 minimum deposit. (If you would rather get a savings account or money market with no time restriction, look at the best savings accounts or best money market accounts).
This list is updated monthly – and competition has become much more intense in May. A number of banks that were in our April report have been replaced in May as rates continue to inch higher. Here are the accounts with some of the best CD rates:
- 1-Year CD: Synchrony – 1.40% APY, $2,000 minimum deposit
With a $2,000 minimum deposit you can earn a healthy 1.40% APY. Synchrony (formerly part of GE) has a very large store credit card business. For example, if you open a credit card at Old Navy, it is issued by Synchrony. Synchrony gathers online deposits (without branches) to fund its store card business. Your deposits are FDIC insured up to the legal maximum, and Synchrony is a publicly traded company.
- 3 months – 10 years: Discover Bank – 0.35% APY – 2.20% APY; $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: Discover offers a wide range of maturities, and you can get a CD rate with a duration as short as 3 months or as long as 10 years.
- 1-Year CD: EverBank – 1.45% APY, $5,000 minimum deposit
EverBank, which is based in Florida, was recently acquired by TIAA-Cref. EverBank has become very competitive with CD rates. If you have at least $5,000 you can get a high (in these times) rate of 1.45%. Like all banks listed in this article, your deposits will be FDIC insured (up to the FDIC limits). There is no monthly fee with this account.
- 1-Year CD (from a credit union): PenFed – 1.31% 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 – making this a good option if you don’t have the $5,000 required for EverBank. And if you are willing to give up a few points of yield to support a credit union, PenFed is a nice choice.
- 2 Year CD: Synchrony – 1.65% APY, $2,000 minimum deposit
Synchrony increased interest rates this month on 2-year CDs (Last month Capital One was on the list, at 1.45%). Just remember that FDIC insurance is based upon your total relationship with a bank across all accounts. If you are building a CD-ladder, make sure you keep your total relationship balance at Synchrony below $250,000.
- 3-Year CD: PenFed – 1.76% APY, $1,000 minimum deposit
PenFed once again makes its way onto the list, with a very strong 3-year CD offering. Anyone can join this credit union, and the minimum deposit is only $1,000. Your deposit is insured by the NCUA (which is like the FDIC, but for credit unions). Once you are a member of the credit union, you can also take advantage of other products – including very low-rate auto loans and mortgages.
- 3-Year CD: EverBank – 1.92% APY, $5,000 minimum deposit to open
EverBank increased the 3-year CD rate dramatically in May to 1.92%. You need at least $5,000 to open the account, and your deposit is FDIC-insured. After EverBank’s acquisition by TIAA-Cref, it has become very aggressive on interest rates, to the benefit of consumers. You can earn these rates on deposits up to $1,000,000.
- 5-Year CD: Synchrony – 2.30% APY, $2,000 minimum deposit
Synchrony has also increased its 5-year CD rate in May. You need at least $5,000 to open the account, but you can earn 2.30%. After clicking on “Apply Now” you will be taken to their standard CD landing page. Just make sure you select the 60-month option. Just remember: if you close the CD early, you would be hit with a 365 day interest penalty. That means if you close the account in the first year, you would actually lose some of your initial deposit. You won’t get rich with a 2.30% APY, but it has been a long time since we have seen rates this high. By comparison, the rate at Bank of America on a 5-year CD is only 0.15%.
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.