Updated November 1, 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 1.70% with only a $1,000 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 continues to intensify. Here are the accounts with some of the best CD rates:
- 6 months – 6 years: Goldman Sachs Bank USA – 0.60% – 2.45% APY, $500 minimum deposit
- 1-year: 1.65% APY
- 2-year: 1.75% APY
- 3-year: 2.00% APY
- 5-year: 2.40% APY
- 6-year: 2.45% APY
- 3 months – 10 years: Discover Bank – 0.35% APY – 2.35% APY; $2,500 minimum deposit
- 1-Year CD: Able Banking – 1.70% APY, $1,000 minimum deposit
Able Banking is a division of Northeast Bank, which is a small community bank based in Maine. With a little over $1 billion in assets, Northeast Bank has been around since 1872 and your deposits will be FDIC insured up to the legal limit. The 1-year CD rate of 1.70% is one of the highest we could find in the market. You only need $1,000 to open the account.
- 1-Year CD (from a credit union): PenFed – 1.61% APY, $1,000 minimum deposit – must become a credit union member
- 2 Year CD: Synchrony – 1.75% APY, $2,000 minimum deposit
- 2 Year CD from a Credit Union: US Alliance – 2.02% APY, $500 minimum deposit
US Alliance is a credit union that began its life as a financial institution for employees of IBM. Over the years the credit union has grown, and you can now join if you become a member of the American Consumer Council (which anyone can do). There are a few extra steps to get the account open. But once you are a member, you can take advantage of the highly competitive interest rates on offer. Your money will be protected by the CUNA up to the legal limits.
- 3-Year CD: EverBank – 2.10% APY, $5,000 minimum deposit to open
- 5-Year CD: Synchrony – 2.35% APY, $25,000 minimum 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.
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