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Ultimate Guide to Teacher Student Loan Forgiveness

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

With reporting by Hannah Rounds and Brittney Laryea

Becoming a schoolteacher is heralded as a rewarding profession but not one that often comes with a large paycheck. Starting salaries for public school teachers range from $27,000 to $48,000, according to the National Education Association. And yet, teachers who graduate with a Master in Education carry an average of $50,000 in student loan debt.

With salaries like these, it’s no wonder teachers can struggle to afford their student loan payments. Thankfully, classroom teachers qualify for many debt forgiveness programs. These programs can help give teachers an extra boost to help them pay down debt while working.

These are the most important student loan forgiveness programs for teachers, which we’ll review in detail in this guide.

To skip ahead to the program you’re interested in, just click the links below.

Public Service Loan Forgiveness

Public Service Loan Forgiveness is a 2007 program that originally promised to forgive federal student loans for any employees of nonprofit or public sector companies. That, of course, includes teachers.  Under the program, borrowers who made 120 on-time payments would ultimately qualify for loan forgiveness.

However, the program's future is now uncertain. A proposed education budget from the White House appears to eliminate the program, and it is not yet clear whether or not enrolled workers will have their loans forgiven as promised. Any budget will have to receive Congressional approval, which means we may not have a certain answer for months to come.

How do l know if I’m eligible?

Teachers at nonprofit schools are eligible for Public Service Loan Forgiveness. This includes public and private nonprofit schools. To qualify, teachers must make 120 on-time payments while working full time in a public service role.

The 120 payments do not have to be consecutive. However, you must pay the full amount listed on your bill. Additionally, your loans must be in good standing when you make the payment.

IMPORTANT: You can only qualify for loan forgiveness if you are enrolled in a qualified income-driven repayment option.  Learn more about income-driven repayment plans here.

Also, payments only count toward forgiveness if your loan is in active status. That means any payments made while loans are in the six-month grace period, deferment, forbearance, or default do not count toward forgiveness.

How can I be sure my employer is covered by PSLF?

There has been a lot of confusion about which employers are considered nonprofit or public service organizations. To be sure your employer is eligible, you should submit an employment certification form to FedLoan Servicing.

Although the future of the loan forgiveness program remains uncertain, borrowers may still want to prepare for a positive outcome and enroll in hopes that the program will continue.

How much of my loan will be forgiven?

After 120 payments, the government will cancel 100% of the remaining balance and interest on your Direct Federal Loans.

Direct Federal Loans include: Direct Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Will I have to pay taxes?

Public Service Loan Forgiveness (PSLF) is completely tax-free. You will not see an increased tax bill the year your loans are forgiven.

How to claim Public Student Loan Forgiveness

As the program launched in 2007 and requires 10 years of on-time payments, the first group of graduates who could be eligible for PSLF will begin submitting their applications in 2017.

But don’t expect it to happen automatically. Even if you qualify for loan forgiveness, the government will not automatically discharge your loans. You need to submit the PSLF application to receive loan forgiveness.

The applications for loan forgiveness are not yet available. The U.S. Department of Education will make them available before October 2017.

What if I have a Parent Plus, Perkins or FFEL loan?

As it stands, some types of federal student loans — such as Parent PLUS, Perkins and Federal Family Education Loans — are not included under the PSLF program. One way to get around this is by consolidating those loans through the federal direct consolidation program. If you take this route, the entire consolidation loan will be forgiven.

PSLF works best in conjunction with an income-based repayment plan. These plans lower your monthly payments.

Since you will qualify for loan forgiveness, this means more money in your pocket. Just remember, you must keep your loans in good standing — making 120 on-time consecutive payments — to qualify for forgiveness.

Federal Teacher Loan Forgiveness

The Federal Teacher Loan Forgiveness program encourages teachers to work in the neediest areas of the country. Teachers who qualify can have up to $17,500 in federal loans forgiven after five years.

How do I know if I’m eligible for Federal Teacher Loan Forgiveness?

Teachers must complete five consecutive years of teaching at a low-income (Title I) school. If your school transitions off the list after your first year of teaching, your work in that school still counts toward forgiveness.

Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Stafford Loans can be forgiven. Loans must have originated after October 1, 1998. This is important for anyone who hasn’t paid off loans and wants to consider teaching as a second career.

Your loans may not be in default at the end of your five years of teaching. The only exception includes loans that are set up in a repayment arrangement.

You qualify for teacher loan forgiveness as long as you are on a qualified repayment option. These include the standard 10 year repayment plans or the payments required by an income-based repayment plan. If your loan goes into a default, a repayment arrangement works with this program.

How much of my loan will be forgiven?

To receive the full $17,500 in forgiveness, you must meet one of two criteria: either work as a highly qualified math or science teacher in a secondary school, or work as a qualified special education teacher for children with disabilities.

Other highly qualified teachers can have up to $5,000 of loans forgiven if they work in Title I schools.

You’ll notice that all teachers must be “highly qualified.” To meet the highly qualified standard, you must be licensed in the state you work, hold a bachelor’s degree, and demonstrate competence in the subject(s) you teach. Do you need to check whether you’re highly qualified? The U.S. Department of Education explains qualification in detail.

Will I have to pay taxes?

The Federal Teacher Loan Forgiveness program forgives your loans and does not result in a taxable event.

How to apply

Qualified teachers must submit this application with administrative certification. Be sure you work with your school's administration in advance.

Tips and tricks

Consider teaching at a Title I school directly after graduation. The loan forgiveness may help you achieve debt freedom within five years. Consider an income-based repayment program to lower your payments while you’re teaching.

Teacher Cancellation for Federal Perkins Loans

If you’re a teacher who took out a Federal Perkins Loan from your school, you may qualify for loan cancellation. Teachers can cancel up to 100% of their Perkins Loans after five years.

How do loans become eligible?

The teacher cancellation program for Perkins Loans is one the most lenient programs for loan forgiveness.

You will qualify to have loans forgiven if you meet any one of these three requirements:

  • You work full time in a low-income (Title I) school.
  • You work full time as a special education teacher.
  • You work full time in a designated shortage area (such as math, science, foreign language, bilingual education, or any shortage area declared by your state).

If you work part time at multiple qualifying schools, you may qualify for loan cancellation.

Your loans may be in a grace period, deferment, or any qualified repayment plan at the time of discharge. They may not be in default.

Also, you must be enrolled in a qualified repayment option. Your payment plan could be the standard 10 year repayment plans or an income-based repayment plan. If you qualify fordeferment, your loans may still be eligible for cancellation.

How much of my loan will be forgiven?

Over the course of five years, 100% of your Federal Perkins Loan will be forgiven. The discharge occurs at the end of each academic year. In years 1 and 2, the government discharges 15% of the principal balance of the loan. It cancels 20% of the loan in years 3 and 4 of service. The final year, the remaining 30% of your loan will be canceled.

In most cases, the five years of service do not have to be consecutive. However, this isn't always the case. The university that issued your Perkins Loan administers the loan cancellation program. That means you need to check with your alma mater for complete details.

Will I have to pay taxes?

This program forgives your loans and does not result in a taxable event.

How to apply

You must request the appropriate forms from the university that holds the loans. If you don’t know the office that administers Perkins Loans, contact your university’s financial aid office.

Tips and tricks

If your Federal Perkins Loan qualifies for deferment, take advantage of this option. Under deferment, you don’t have to make any payments on the loan. At the same time, the government pays any accruing interest. Teachers who qualify for deferment can have 100% of their Perkins Loan forgiven without ever paying a dime.

TEACH Grant

The Teacher Education Assistance for College and Higher Education (TEACH) Grant isn’t like other loan cancellation programs. Under the terms of the program, you accept the money during your college years. Eligible students can receive a grant of up to $4,000 per year of education. After you graduate, you agree to work as a teacher for four years in a high-need field in schools that serve low-income families.

As long as you keep your end of the bargain, you don’t have to pay the money back. Otherwise, the grant transforms into a loan. If you’re planning to become a teacher, this can be a great opportunity. But you need to understand the details before you accept the grant.

How do I qualify for a TEACH Grant?

To qualify for a TEACH Grant, you must enroll in a teacher education program, complete the Free Application for Federal Student Aid, maintain a certain GPA (usually 3.25), and agree to a work requirement.

When you accept a TEACH Grant you agree to work as a teacher in a high-need field serving low-income families. You must complete four years of full-time teaching within eight years of graduation.

In this instance, you take the money first and agree to do the work later. That means that you’re taking on a risk.

You must complete a Free Application for Federal Student Aid form, and you must complete a training and counseling module from StudentAid.gov. Pay attention to the training; it will help you understand the risks of the TEACH Grant.

What happens if I change my mind?

If you don’t keep up your end of the bargain and meet all of the work requirements, the funds get converted into a Direct Unsubsidized Loan. What’s worse? The interest begins accruing from the point you received the grant. That means you’ll have the principal and interest to pay.

Don’t take a TEACH Grant unless you plan to meet the work requirements.

Will I have to pay taxes?

TEACH Grants are nontaxable education grants. However, you cannot claim a tax credit for education expenses paid by the grant.

Tips and tricks

The TEACH Grant offers a great way to graduate debt free, but you must commit to follow through. Don’t take the grant money unless you know that you can work as a teacher for at least four years.

Teacher Loan Forgiveness Programs by State

Several states offer generous loan forgiveness opportunities. You can use these programs in conjunction with the federal programs above. Qualified applicants might achieve debt freedom in a few years with these programs. These are some of the highlights of state loan forgiveness programs.

If your state isn't listed, check out the database at the American Federation of Teachers. They keep track of most major scholarship and loan forgiveness opportunities for teachers.

Arkansas State Teachers Education Program

The Arkansas State Teachers Education Program (STEP) helps teachers with federal student loans pay back their loans. Teachers must work in geographical or subject areas with critical shortages.

Arkansas teachers with federal student loans can receive loan repayment assistance if they serve geographical areas with teacher shortages. They can also receive repayment assistance if they have licensure or endorsements in designated subject areas.

Eligible teachers can receive up to $3,000 per year that they teach in critical shortage areas. There is no lifetime maximum of loan forgiveness. Licensed minority teachers can receive an additional $1,000 for every year that they qualify for STEP.

Arkansas Teacher Opportunity Program (TOP)

The Teacher Opportunity Program, or TOP, awards tuition reimbursement grants up to $3000 of out-of-pocket expenses to licensed Arkansas classroom teachers and administrators with the Arkansas Department of Education.

Arkansas classroom teachers and administrators who declare an intention to continue employment as a classroom teacher or administrator in Arkansas after completing their program are eligible for TOP. Applicants must also have at least a 2.5 cumulative GPA in the courses funded by the TOP grant when they apply.

Applicants who meet all requirements can receive reimbursement for out-of-pocket expenses up to $3000 for courses related to employment. The grant reimburses educators up to 6 college credit hours each academic year.

Arkansas administrators and educators can find more information about TOP on the Arkansas Department of Higher Education website. Applicants must complete and submit an application to The Arkansas Department of Higher Education by June 1 each year.

Delaware Critical Need Scholarships

The Critical Need Scholarship program reimburses Delaware teachers for all or part of tuition and registration fees paid for courses that contribute toward the completion of a Standard Certification.

Full-time employees of a Delaware school district or charter school who teach on an Emergency Certificate in a critical need area as defined by the Delaware Department of Education. Applicants must also have a minimum 2.0 GPA.

The scholarship forgives all or part of tuition and registration fees paid up to $1,443 for undergraduate coursework or up to the cost of three credits per term for graduate coursework, not to exceed the cost of three credits at the University of Delaware.Courses must contribute toward the completion of a Standard Certification.

Teachers can find more information and application instructions here. You must apply through the school district or charter school where you are employed. The application cycles twice each year; one deadline is in January and the other is in June.

Illinois Teacher Loan Repayment Program

The Illinois Teacher Loan Repayment Program offers up to $5,000 to Illinois teachers who teach in low-income schools in Illinois. This award is meant to encourage the best teachers to serve students in high-need areas.

The Illinois Teacher Loan Repayment Program is a unique loan forgiveness matching program. Teachers must meet every qualification to receive Federal Teacher Loan Forgiveness. In addition, teachers must have served all five years in a low-income Illinois school.

Teachers who meet all requirements can receive federal loan forgiveness up to $5,000. You must apply for Illinois loan repayment funds within six months of receiving federal loan forgiveness.

Iowa Teacher Shortage Forgivable Loan Program

Iowa offers student loan repayment assistance to state-certified teachers as an incentive for educators to teach in subjects with a shortage of instructors through the state’s Teacher Shortage Forgivable Loan Program.

Current Iowa teachers who began their first teaching position in Iowa after July 1, 2007 and are completing studies in a designated shortage subject area are eligible for the Teacher Shortage Forgivable Loan Program.

Teachers must have a balance on either a Direct Stafford Loan or Direct Consolidation Loan and agree to teach in the shortage subject area upon graduation. For 2016 graduates, the maximum award is $6,858.

Recipients are awarded up to 20% of their remaining loan balance annually, up to the average resident tuition rate for students attending Iowa's Regent Universities the year following graduation.

Teachers can find more information on the Iowa College Student Aid Commission website. The 2016-17 application window is between January 1 and March 31, 2017, for the academic year. Recipients must reapply each year.

Maryland Janet L. Hoffman Loan Assistance Repayment Program

Maryland offers loan repayment assistance to excellent teachers who teach STEM subjects or in low-income schools.

Only teachers who earned a degree from a college in Maryland or a resident teacher certificate from the Maryland State Department of Education qualify for this award. Additionally, qualified Maryland teachers must serve in low-income (Title I) schools or other schools designated for improvement. Alternatively, licensed teachers who work in designated subject areas such as STEM, foreign languages, or special education can qualify.

To qualify, you must earn less than $60,000 per year or $130,000 if married filing jointly.

Qualified teachers can have up to $30,000 repaid over the course of three years. The repayment assistance you receive depends on your overall debt load.

Total Debt Overall Award Limit Yearly Payment
$75,001 - Over $30,000 $10,000
$40,001 - $75,000 $18,000 $6,000
$15,001 - $40,000 $9,000 $3,000
$15,000 - Below $4,500 $1,500

The Janet L. Hoffman Loan Assistance Repayment Program offers some of the most generous loan repayment terms. However, the program has stringent eligibility requirements. To find out more about your eligibility, visit the Maryland Higher Education Commission website.

Mississippi Graduate Teacher Forgivable Loan Program (GTS)

The Graduate Teacher and the Counseling and School Administration Forgivable Loan Program (GTS/CSA) was established to encourage classroom teachers at Mississippi’s public schools to pursue advanced education degrees.

Disclaimer: Due to budget constraints, only renewal applicants will be offered funds from the GTS program for the 2017-18 school year. No awards will be made to new applicants. It's not clear whether the GTS program will resume offering funds to new applicants in the future.

Current full-time Mississippi public school teachers earning their first master's degree and Class ‘AA’ educator’s license in an approved full-time program of study at a Mississippi college or university are eligible for the GTS program.

Selected applicants are awarded $125 per credit hour for up to 12 credit hours of eligible coursework.

Teachers can find more information about GTS program on the Rise Up Mississippi website. Complete and submit the online application with all supporting documentation by the year’s stated deadline. The application must be completed each year to remain eligible.

Mississippi Teacher Loan Repayment Program (MTLR)

The Mississippi Teacher Loan Repayment Program, or MTLR program, helps teachers pay back undergraduate student loans for up to four years or $12,000.

Disclaimer: Due to budget constraints, only renewal applicants will be offered funds from the MTLR program for the 2017-18 school year. No awards will be made to new applicants. It's not clear whether the MTLR program will resume offering funds to new applicants in the future.

Mississippi teachers who currently hold an Alternate Route Teaching License and teach in a Mississippi teacher critical shortage area or in any Mississippi public or charter school if teaching in a critical subject shortage area are eligible for the MTLR program. Perkins and Graduate-level loans are not eligible for repayment.

Recipients can receive a maximum $3000 annually toward their undergraduate loans for up to four years or $12,000.

Teachers can find more information on the Rise Up Mississippi website. Complete and submit the online application by the year’s stated deadline. The application must be completed each year to remain eligible.

Montana Quality Educator Loan Assistance Program

The Montana Quality Educator Loan Assistance Program encourages Montana teachers to serve in high-needs communities or in subject areas with critical shortages. The program provides direct loan repayment for teachers who meet the requirements.

Licensed Montana teachers who work in “impacted schools” in an academic area that has critical educator shortages. Impacted schools are more rural, have more economically disadvantaged students, or have trouble closing achievement gaps.

Montana will repay up to $3,000 a year for up to four years.

New York City Teach NYC

Teachers hired by the New York City Department of Education who work in specified shortage positions can receive up to $24,000 in loan forgiveness over the course of six consecutive years.

Teachers must work in a New York City school in one of the following designated shortage areas:

  • Bilingual special education
  • Bilingual school counselor
  • Bilingual school psychology
  • Bilingual school social worker
  • Blind and visually impaired (monolingual and bilingual)
  • Deaf and hard of hearing
  • Speech and language disabilities (monolingual and bilingual)

The NYC Department of Education will forgive one-sixth of your total debt load, each year for up to six consecutive years. The maximum award in one year is $4,000. The maximum lifetime award is $24,000.

North Dakota Teacher Shortage Loan Forgiveness Program

The North Dakota Teacher Shortage Loan Forgiveness Program encourages North Dakota teachers to teach in grades or content levels that have teacher shortages.

The North Dakota Department of Public Instruction identifies grades and content areas with teacher shortages. Teachers who work full time as instructors in those grades and content areas in North Dakota can receive loan forgiveness.

Teachers can receive up to $1,000 per year that they teach in a shortage area. The maximum lifetime award is $3,000.

This program is administered by the North Dakota University System. To get more information, teachers should visit the North Dakota University System website, call 701-328-2906, or email NDFinAid@ndus.edu.

Oklahoma Teacher Shortage Employment Incentive Program

Oklahoma’s Teacher Shortage Employment Incentive Program, or TSEIP, is a legislative program carried out by the Oklahoma State Regents for Higher Education to help attract and keep mathematics and science teachers in the state.

Oklahoma state-certified classroom teachers who are not yet certified to teach math or science are eligible for TSEIP. Teachers must also agree to teach in an Oklahoma public secondary school for at least five years.

TSEIP reimburses eligible student loan expenses or a cash equivalent. The amount reimbursed varies from year to year.

Teachers can find more information on about the TSEIP on the Oklahoma State Regents for Higher Education website. Fill out and submit the Participation Agreement Form to your institution’s TSEIP coordinator no later than the date of your graduation from a four-year college or university in Oklahoma.

South Carolina: Teachers Loan Program

The South Carolina Teachers Loan awards forgivable student loans to students studying to become public school teachers. The program was created as an incentive for state residents to pursue teaching careers.

South Carolina school teachers and residents enrolled at least half-time at an accredited institution. Students must already be enrolled in a teacher education program or express an intent to enroll in a teacher education program. If already certified, you must seek an initial certification in a different critical subject area.

Freshmen and sophomore recipients can borrow $2,500 for each year, all other recipients can borrow $5,000 each year, up to $20,000. Loans are forgiven only if teachers work in an area of critical need.

Teachers can find more information on about the Teachers Loan Program on the South Carolina Student Loan website.Download and complete the application and submit it to South Carolina Student Loan.

South Carolina Career Changers Loan

The South Carolina Career Changers Loan awards forgivable student loans state residents who wish to change careers to become public school teachers. The program was created as an incentive for state residents to pursue teaching careers.

South Carolina residents who meet all requirements for the Teachers Loan, and have had a baccalaureate degree for at least three years. In addition, you must have been employed full-time for at least three years.

Recipients can borrow up to $15,000 per year up to $60,000.

South Carolina residents can find more information on about the Teachers Loan Program on the South Carolina Student Loan website.Download and submit a completed application to South Carolina Student Loan.

South Carolina PACE Loan

The South Carolina Program of Alternative Certification for Educators (PACE) loan reimburses individuals who have completed a PACE program. Those who are interested in teaching who have not completed a teacher education program may qualify to participate in the PACE program.

Teachers must be enrolled in the South Carolina Program of Alternative Certification for Educators (PACE) program and have received an Educator's Certificate for the current year. You must be teaching full-time in a South Carolina public school.

Participants can borrow up to $750 per year, capped at $5,000.

Teachers can find more information on about the PACE Loan program on the South Carolina Student Loan website.Download and submit a completed application to South Carolina Student Loan.

Tennessee Math & Science Teachers Loan Forgiveness

The Tennessee Math & Science Teacher Loan Forgiveness Program is offered through the Tennessee Student Assistance Coalition. The program awards up to $10,000 of forgivable loans to public school teachers working toward an advanced degree in math or science or earning a certification to teach math or science.

Tenured Tennessee schoolteachers working toward an advanced degree in math or science or earning a certification to teach math or science at an eligible institution. Recipients Must work in a Tennessee public school system for two years per each year of loan funding received.

Recipients are awarded $2,000 per academic year up to $10,000.

Teachers can find more information on the Tennessee Student Assistance Coalition website. Teachers must reapply for the program each academic year. The application has two cycles; one deadline is in February, the other is in September.

Teach for Texas Loan Repayment Assistance Program

The Teach for Texas Loan Repayment Assistance Program encourages Texas teachers to serve high-needs areas. Qualified teachers can receive up to $2,500 in loan repayment per year with no lifetime maximum.

Any Texas-based teacher with outstanding loans can apply for loan repayment assistance. However, funds are given out with priority to teachers who work in shortage subjects in schools with at least 75% economically disadvantaged students. Shortage subjects include ESL, math, special education, science, career education, and computer science.

If funds remain, they are given out in the following order:

  1. Teachers who work in areas with 75% or more economically disadvantaged students in nonshortage subjects.
  2. Teachers who work in shortage subjects in schools with 48.8%-75% economically disadvantaged students.
  3. Teachers who demonstrate financial need.

Eligible teachers can receive up to $2,500 in loan forgiveness each year with no lifetime maximum.

West Virginia Underwood-Smith Teacher Scholarship Loan Assistance Program

West Virginia teachers who work in critical need positions may qualify for the Underwood-Smith Teacher Scholarship Loan Assistance Program. This scholarship helps qualified teachers pay back student loans.

Teachers and school professionals who work in a designated critical position can qualify for the Underwood-Smith scholarship. Critical positions include all teachers in underserved districts and certain teachers who teach subjects with designated shortages.

Qualified teachers can receive up to $3,000 per year in federal loan forgiveness and up to $15,000 over their lifetime.

West Virginia teachers can learn more about the scholarship on the College Foundation of West Virginia website. The most recent list of critical needs can be found here.

Pros & Cons of Student Loan Forgiveness

While some or all of a student loan balance magically disappearing is a dream for many Americans, student loan forgiveness programs aren’t always a walk in the park. Here are the pros and cons.

Pro: Poof! Your debt is gone.

A huge upside of student loan forgiveness is obvious: borrowers can get rid of a significant amount of student loan debt. Beware of caps on the total amount of debt that can be forgiven with some programs. For example, the federal government’s Teacher Loan Forgiveness Program caps loan forgiveness at $17,500.

Con: Eligibility

It’s tough to first qualify and then remain eligible for student loan forgiveness. For example, teachers are eligible for the federal Teacher Loan Forgiveness program, but those who got teaching degrees before 2004, only qualify to have $5,000 worth of loans forgiven. To top that, borrowers must also remember to update their repayment plans each year or risk losing eligibility for the program.

Pro: No tax...sometimes.

The federal repayment plans don’t tax the forgiven amount as income, so you won’t need to pay taxes on the forgiven balance there. However, other programs may not grant the same pardon. If your loans are repaid through a different program, you might be required to count the money received towards your income and pay taxes on it. Look at the program carefully and prepare to set aside funds in case you do need to pay up.

Con: Limited job prospects

Loan forgiveness is give and take. You might be limited to teaching in a particular subject or geographic location for a period of time in order to get your loans forgiven. This could mean relocating your family or a long commute if you unable to live near the location. If you fall out of love with teaching, you might be stuck with the job, just to get your loans paid off.

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Earning Interest, Reviews, Strategies to Save

Review of Live Oak Bank’s Deposit Rates

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Review of Live Oak Bank
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Chances are you haven’t heard of Live Oak Bank. After all, this lender, based mostly on the web, has only been around since 2008, and it mostly focuses on giving out small business loans to businesses in specific industries, such as veterinary practices or craft breweries.

That’s no reason to pass it up for your personal banking needs, however. In fact, this little gem of a bank has one of the best-kept secrets in the personal banking world: it has one of the highest savings account interest rates you’ll find from an online bank. (More on that below.) And, most of its other personal deposit accounts offer relatively high rates as well.

Let’s take a more in-depth look at its deposit accounts to see if they’re right for you.

How do Live Oak Bank’s savings accounts compare?

APY

Minimum Deposit

1.60%

Up to $5 million

(but only up to $250,000 is FDIC-insured)

Rates current as of Jan. 17, 2018.

When it comes to the best savings accounts with high interest rates, Live Oak Bank currently has the highest rate. This means that Live Oak Bank is lowering the bar and allowing anyone to take advantage of these high interest rates, no matter how much is in his or her pocket right now.

What else do I need to know about Live Oak Bank’s savings account?

Live Oak Bank wants you to use your savings account, and use it often, which is one reason why it has no monthly maintenance fee. If there is no activity on your account for 24 months and your balance is less than $10.01, Live Oak Bank will take the remainder of your balance as a Dormant Account Fee and close your account.

Getting money into a Live Oak Bank savings account from an external bank account can take a little bit of time depending on how you do it. If you request the money through Live Oak Bank’s online portal, the funds won’t be available for up to five or six business days. But if you opt instead to send the money to Live Oak Bank from your current bank, the money will be available as soon as it’s received. Your Live Oak Bank savings account will start earning interest as soon as the money posts to your account.

You can easily withdraw your money at any time via ACH transfer. Simply log into your Live Oak Bank savings account and electronically transfer it to whichever bank account you wish. It’ll be available in two to three business days.

You are limited to making just six transactions (deposits or withdrawals) per month with this savings account. That’s not a Live Oak Bank thing; that’s a federal regulation imposed upon savings accounts in the U.S. If you absolutely can’t wait until next month to make another deposit or withdrawal past your allotted six per month, you’ll be charged a $10 transaction fee for each additional action.

LEARN MORE Secured

on Live Oak Bank’s secure website

Member FDIC

How Live Oak Bank CD rates compare?

Live Oak Bank currently offers the highest CD rates.

This bank’s minimum deposit requirements also seem to be right on par with other bank’s minimum deposit requirements. The current best CDs out there have minimum deposit requirements both above and below Live Oak Bank’s $2,500 benchmark.

Term

APY

Minimum Deposit

6-month CD

1.55%

$2,500

1-year CD

2.10%

$2,500

18-month CD

2.20%

$2,500

2-year CD

2.30%

$2,500

3-year CD

2.35%

$2,500

4-year CD

2.40%

$2,500

5-year CD

2.55%

$2,500

Rates current as of Jan. 17, 2018

What else do I need to know about Live Oak Bank’s CDs?

Only U.S. citizens and permanent residents are eligible to open these accounts. It’s a relatively straightforward process to open a CD: Simply complete the forms online, provide any needed documentation (such as your current bank account details), and wait for an account approval. Once your account is open, you can transfer over your deposit, where it will be held for five days before officially launching your CD.

If you need to take out your deposit early, bad news: As with many CDs, you’ll face an early-withdrawal penalty at Live Oak Bank. If your original CD term was for six months, one year or 18 months, you’ll be charged 90 days’ worth of interest. If your original CD term was for longer than that, you’ll be charged a higher rate of 180 days’ worth of interest.

If you are able to resist the urge to withdraw your money early, congratulations! Your CD will automatically renew into a second CD with the same term length. However, don’t panic if that’s not what you want: You have up to 10 days after the CD has matured to withdraw your money penalty-free and park it in your own bank account (whether it’s with Live Oak Bank or not).

Overall review of Live Oak Bank

It’s easy to overlook Live Oak Bank for other larger, more established consumer banks like Ally or Discover Bank. But Live Oak has some of the best CD rates around, and the best savings account available on the market today.

Lest you be scared away by its smaller name, consider this: This tiny-but-growing bank is getting rave reviews from customers and employees alike. It carries an “A” health rating, and has a top-notch online banking portal. About the only thing missing is a checking account to let you seamlessly do all of your daily banking with this great company.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Review of Chase Bank’s CD Rates

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Review of Chase CD rates
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Chase Bank is a consumer and commercial bank operated by JPMorgan Chase & Co., an international business firm dating back to 1799 that currently has $2.6 trillion in assets and operations worldwide. The bank, insured by the Federal Deposit Insurance Corporation (FDIC), has 5,100 branches and 16,000 ATMs across the United States. Its products include credit cards; checking, savings and CD accounts; and auto and home equity loans.

But Chase’s CDs are the subject of this article; they can be opened at a branch or completely online at term lengths ranging from one to 120 months.

How Chase CD rates compare with those of other banks

We compared Chase’s CD offerings with entries on our current list of the Best CD Rates. On the positive side, you’ll need less money to qualify for a Chase CD than you might at other banks. Chase allows customers to open their CDs with a minimum deposit of $1,000, which is slightly lower than qualifying amounts at some other institutions. Chase CDs are also open to applicants who do not bank with Chase, in contrast with the practices of some banks and credit unions that require member checking or savings accounts.

However, Chase CD rates are far from the most competitive rates out there. You can easily get find better APY rates at other institutions, particularly for one-year CDs. If you decide to go with Chase, look into so-called “relationship rates” with a higher APY. Relationship rates are offered to customers who link their CDs to a Chase personal checking account.

On a 12-month CD for under $10,000, for example, you’ll currently draw twice the percentage rate offered on the standard CD.

As mentioned, a minimum of $1,000 is required to open a Chase CD account, and interest is compounded daily. Depending on the term, your earned interest may be paid monthly, quarterly, semi-annually, annually — and at maturity.

Here’s an overview of the rates Chase currently offers on its CD products. All rates were reviewed at Depositaccounts.com, another LendingTree-owned company, and are current as of Jan. 2, 2018.

CD term

APY

Min. deposit amount

1-Month

0.01%

$1,000

2-Month

0.01%

$1,000

3-Month

0.01%

$1,000

6-Month

0.01%

$1,000

9-Month

0.01%

$1,000

12-Month

0.01%

$1,000

15-Month

0.01%

$1,000

18-Month

0.05%

$1,000

21-Month

0.05%

$1,000

24-Month

0.05%

$1,000

30-Month

0.05%

$1,000

36-Month

0.05%

$1,000

42-Month

0.10%

$1,000

48-Month

0.10%

$1,000

60-Month

0.25%

$1,000

84-Month

0.25%

$1,000

120-Month

0.70%

$1,000

Source: DepositAccounts.com, Jan. 2, 2018

Chase CD relationship rates

Chase CD relationship APY rates are extended to customers who have a linked Chase checking account. You can apply online and if you use a transfer from your account to open the CD, the account can be opened the same day. The minimum deposit is, again, $1,000.

CD term

$0 - $9,999

$10K - $24,999.99

$25K - $49,999.99

$50K - $99,999.99

$100K - $249,999.99

$250K+

1-Month

0.02%

0.02%

0.02%

0.02%

0.02%

0.02%

2-Month

0.02%

0.02%

0.02%

0.02%

0.02%

0.02%

3-Month

0.02%

0.02%

0.02%

0.02%

0.02%

0.02%

6-Month

0.02%

0.02%

0.02%

0.02%

0.02%

0.02%

9-Month

0.02%

0.02%

0.02%

0.02%

0.02%

0.02%

12-Month

0.02%

0.02%

0.02%

0.02%

0.05%

0.05%

15-Month

0.05%

0.15%

0.15%

0.15%

0.20%

0.20%

18-Month

0.15%

0.25%

0.25%

0.25%

0.30%

0.30%

21-Month

0.15%

0.25%

0.25%

0.25%

0.30%

0.30%

24-Month

0.15%

0.25%

0.25%

0.25%

0.30%

0.30%

30-Month

0.15%

0.25%

0.25%

0.25%

0.30%

0.30%

36-Month

0.15%

0.35%

0.35%

0.35%

0.65%

0.40%

42-Month

0.25%

0.45%

0.45%

0.45%

0.50%

0.50%

48-Month

0.25%

0.45%

0.45%

0.45%

0.50%

0.50%

60-Month

0.35%

0.55%

0.55%

0.55%

0.60%

0.60%

84-Month

0.35%

0.55%

0.55%

0.55%

0.60%

0.60%

120-Month

0.90%

1.01%

1.01%

1.01%

1.05%

1.05%

Source: DepositAccounts.com, Jan. 2, 2018

Here’s a sample comparison between the APY on standard and relationship CDs on new accounts. To calculate on earnings at maturity, we assumed an account balance of $5,000.

Chase standard CD APY

Earnings at maturity

Chase relationship CD

Earnings at maturity

12 months at 0.01%

$.50

12 months at 0.02%

$1.00

24 months at 0.05%

$5.00

24 months at 0.15%

$15.01

48 months at 0.10%

$20.03

48 months at 0.25%

$50.19

120 months at 0.70%

$361.23

120 months at 0.90%

$468.67

Important information about Chase CDs

Fees

There are no monthly service fees, however there are $15 fees for inbound domestic and international wire transfers (waived if from another Chase account) and outbound domestic wire transfer fees. Accounts can be opened online. Deposits of more than $100,000 must be opened at a Chase branch office.

Non-Chase customer access

You do not need to have a Chase checking or savings account to open a standard Chase CD account. You’ll need to provide a Social Security number, driver’s license and contact information. Deposits must be made from a checking or savings account through your existing bank.

Maturity date and grace period
Law requires banks to alert consumers before the maturation date on CDs. Chase considers the maturity date as the last day of the term. It offers a 10-day grace period on all CDs with terms 14 days or longer. During the grace period, you can withdraw the funds without penalty or roll over the account to another term.

Automatically renewable CDs versus single-maturity CDs

Account holders have the option of opening an automatically renewable or single-maturity CD account.

With an automatically renewable CD, the account renews on the maturity date for the same term as the original one, making the new maturity date the last day of the new term. The standard rate will apply unless the owner qualifies for a relationship CD.

The single-maturity CD does not automatically renew and earns no interest following the maturity date. You may want to see if Chase is offering any promotional rates during the 10-day grace period if you plan to invest in another Chase CD using a ladder strategy.

Earning interest on a Chase CD

Interest on Chase CDs begins to accrue on the first business day of deposit into your account and is calculated on a daily balance, 365 days a year. Paid or credited interest can be withdrawn during the term or at maturity without incurring penalties. For maturities of more than one year, interest will be paid at least annually, according to the bank. If the CD matures and automatically renews, the interest in the account is rolled over into the new principal.

Early-withdrawal penalties and fees
According to Chase, early-withdrawal penalties are deducted from your principal and do not exceed the total amount of earned interest. The penalty is 1 percent of the amount withdrawn if the term of the CD is less than 24 months. The early-withdrawal penalty is 2 percent for terms of 24 months or more.

Chase CD early-withdrawal penalties can be waived upon:

  • Death of a CD owner
  • Disability of a retirement CD owner
  • Retitling of a CD
  • A court ruling that the CD owner is incompetent

The bottom line:

Chase’s CD rates are likely best for customers who link the CD to their personal checking accounts because they can qualify for those juicier relationship rates. The rates improve for longer terms and larger deposit amounts. Chase’s online tools allow you to apply for relationship CDs and track your investments. The minimum amount to open a standard CD account ($1,000) is on par or slightly lower than those required by other institutions. Overall, the APY rates are not as good as you can get from some competing banks and credit unions.

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Gabby Hyman
Gabby Hyman |

Gabby Hyman is a writer at MagnifyMoney. You can email Gabby here

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Reviews, Strategies to Save

BB&T CD Rates and Review

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Trying to find BB&T CD rates
Source: iStock

As you may know if you’ve done a search for BB&T CD rates, their website is not a helpful place to turn for information. Beyond a basic overview of their CDs on their website stating that they have CDs with terms ranging from seven days to five years, they do not give details on their current rates. BB&T did not respond to email and phone inquiries from MagnifyMoney asking why the bank does not publish its CD rates online. When we called their customer service number, a representative said BB&T’s CD rates change on a daily basis and said the best way to learn about CD rates is to call or visit a local branch.

So that’s what we did.

We called BB&T branches on January 2nd. After conducting this research, it’s not surprising BB&T makes their CD rates hard to find — they’re terrible.

BB&T CD rates and products

BB&T offers CD terms ranging from as short as seven days to as long as five years. They have eight CD options, each with different investment goals.

7-day to 60-month

For short-term investments, BB&T offers CDs ranging from seven days to 60 months. These personal CDs offer a fixed rate of return along with the flexibility to focus on developing either a short- or long-term investment.

BB&T CD Term

APY

Minimum Deposit Amount

3 Months

0.03%

$1,000

6 Months

0.05%

$1,000

1 Year

0.10%

$1,000

18 Months

0.15%

$1,000

2 years

0.20%

$1,000

3 Years

0.40%

$1,000

4 Years

0.45%

$1,000

5 Years

0.50%

$1,000

Rates as of Jan. 2, 2018

Not only can you find better CD rates at other banks and credit unions for each of the terms BB&T offers, you can get those better rates with smaller minimum deposits. BB&T’s offerings are far from the best in every term length above — you can see some of the top options in our monthly roundup of the best CD rates.

With the seven-day to 60-month BB&T CDs, there are no penalty-free options for withdrawing your funds prior to the CD reaching maturity. The early withdrawal penalty is the lesser of $25 or 12 months of interest for longer-term CDs. So with smaller initial deposits, early withdrawal penalties will negate any interest you may have earned.

Can’t Lose

As the name of this CD implies, whether rates go up or down, you can’t lose. Well, actually, you can: The APY is so low, you’re almost certainly going to lose money to inflation.

At the 12-month mark of the CD’s term, you may make one withdrawal without paying any fees. So if the market rate is higher than what you’re currently getting, simply withdraw the money and reinvest at the higher rate.

If, however, the interest rate you’re receiving is better than what’s currently available, you also have the option of making a second deposit into the Can’t Lose CD, up to $10,000. This locks in the rate for the new investment amount for the remainder of the term. So whether rates go up or down, you’ll lock in the higher rate.

CD Term

APY

Minimum
Deposit Amount

Withdrawal
Penalties

30-month "Can't Lose"

0.25

$1,000

No penalty for one
withdrawal after 12 months

As of Jan. 2, 2018

Still, you can find many CDs with better APYs than BB&T’s Can’t Lose, whether you’re looking for a 12-month investment or longer.

Stepped Rate

Laddering is a way to stagger your CD investments so you’re able to take advantage of increasing rates. With the Stepped Rate option from BB&T, laddering is built into the CD product. The initial CD starts out at a lower rate and increases each year. For example:

Months

APY

12

0.30%

24

0.40%

36

0.55%

48

0.75%

As of Jan. 2, 2018

This product also allows you to make an additional deposit each year (up to $10,000). So if the interest rate you’re receiving is better than the market, you can invest more money into your existing CD to make a higher return. But if the current CD market is offering better rates than your existing CD, you can simply take advantage of that offer and still make a higher return.

In addition, you may make a withdrawal from what you initially deposited into your Stepped Rate CD after two years. So, again, if the market changes dramatically, you may withdraw your money with no penalty and reinvest in a better option.

Or you could create a CD ladder on your own, choosing CDs with better rates than BB&T’s — higher rates are certainly available.

Add-on

The Add-on CD option from BB&T offers a 12-month CD at 0.10% and an opening deposit of $100. You’ll need a BB&T checking account and a $50/month automatic deposit from your checking account into the CD. To get a personal account, you’ll just need to set up direct deposit or maintain a $1,500 balance.

CD Term

APY

Minimum
Deposit Amount

Withdrawal
Penalties

12-month Add-on

0.10%

$100

Greater of $25 or
6 months’ interest

As of Jan. 2, 2018

Home Saver

If you’re in the market for a new home, and you want to earn a little more interest on the money you’re saving, consider the Home Saver CD. Starting with as little as $100, you’ll be able to deposit money earmarked for your new home every month and earn 0.40% APY. With this CD, as long as you’re withdrawing the money for use toward the purchase of your new home, you won’t pay any penalties for the withdrawal. But you will need a BB&T checking account set up for a monthly deposit of $50 into your Home Saver CD.

CD Term

APY

Minimum
Deposit Amount

Withdrawal
Penalties

36-month Home Saver

0.40%

$100

No penalty for
home purchase

As of Jan. 2, 2018

College Saver

Similar to the Home Saver CD, the College Saver CD is meant for parents or students saving for college. It offers the benefit of starting at a higher APY (0.40%) with the flexibility of withdrawing the money up to four times per year to pay for the cost of attending school. As with the Home Saver, you’ll need to have a BB&T checking account with an automatic monthly deposit of $50. The College Saver offers terms of 36, 48, and 60 months.

CD Term

APY

Minimum
Deposit Amount

Withdrawal
Penalties

36-month College Saver

0.40%

$100

No penalty for
school costs

48-month College Saver

0.45%

$100

No penalty for
school costs

60-month College Saver

0.50%

$100

No penalty for
school costs

As of Jan. 2, 2018

Treasury

This CD offers the ability to make additional deposits of at least $100 into your CD at any time and one monthly withdrawal without penalty. The CD has a six-month term with a variable interest rate tied to the U.S. Treasury Bill — if the rate goes up, you’ll make more money, but if the rate declines, you’ll make less. Right now, rates start at 0.05% and adjust quarterly. Throughout 2016, Treasury Bill rates increased almost every month and have continued to rise in 2017, reaching 1.035% in August. So this is a great option if you have the $5,000 minimum deposit amount and want a short-term investment with the option to add or remove funds from the CD.

CDARS

CDARS stands for Certificate of Deposit Account Registry Service and protects your principal and interest by making sure your money is placed into multiple CDs across a network of banks to keep your CDs insured by the FDIC (maximum limit for each CD is $250,000).

Other things to know about BB&T CDs

Does BB&T allow customers to take advantage of rising rates once they’ve opened a CD?

BB&T has two CD options that allow you to take advantage of rising rates: the 30-month Can't Lose CD and the 48-month Stepped Rate CD. Both allow you to make a withdrawal before the CD comes to maturity in case rates increase (terms apply). They also allow additional deposits in case rates drop and you want to invest more at the existing rate of your CD. However, the current rates on those products are very low, negating the value of their flexibility.

About BB&T

BB&T (Branch Banking and Trust Co.) is a North Carolina-based bank with locations in 16 states and the District of Columbia, including Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and West Virginia.

BB&T offers a mobile app for both iOS and Android. While their website is easy enough to use, finding specific information, particularly about rates, is impossible. Their customer service number isn’t much help in that regard either, with most questions answered with a suggestion to visit a branch location. As a result, if you don’t live in an area with a branch, we don’t recommend using BB&T’s CDs. To find the BB&T branch closest to you, use their branch locator.

Pros and cons of CDs

A certificate of deposit (CD) may offer a higher return than you’ll get with your savings accounts, without the risk of loss that accompanies other investment options with higher return rates. The drawbacks associated with CDs are the inability to access your funds during the term of the investment without suffering a penalty and the risk of interest rates increasing while your money is locked into a CD for a specified term.

The bottom line: Are BB&T CDs right for you?

BB&T does offer some flexible deals to its customers, but in general, better CD rates can be found at both banks and credit unions with comparable terms. You can find them on our list of the best CD rates, which we update every month.

Ralph Miller
Ralph Miller |

Ralph Miller is a writer at MagnifyMoney. You can email Ralph here

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Strategies to Save

The Ultimate Guide to CD Ladders

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The Ultimate Guide to CD Ladders

Certificate of Deposits (CDs) are some of the highest-yielding deposit accounts offered at most banks and credit unions. But, they come with a catch: your money is locked away for a certain period of time, and generally you can’t unlock it without paying an early withdrawal penalty.

It’s also no secret that interest rates are changing these days. That can also affect the returns you get from saving with CDs.Things only get more complex if you’re attempting to create what is called a CD Ladder, which can be used to take advantage of higher APYs while staggering investments so all your cash isn’t tied up for a very long time.

If you want to save money by creating your own CD ladder, you need to juggle your own financial goals with shifting interest rates and early withdrawal penalties. It’s possible that CDs may not even be the right investment tool for you. How are you supposed to decipher what’s the best course of action when there are so many competing possibilities? Fear not. We’ll help you decide whether CD ladders are the right investment tool for you and how to get the most out of them in this guide.

What is a CD ladder?

A CD ladder is a series of several CDs that are structured with varying terms. By staggering the terms, you ensure that each CD finishes its term at regular, predictable intervals. That way, you’ve got access to a steady stream of cash while still earning higher rates than you might through a regular savings or checking account.

The main disadvantage of CD ladders is that your money is locked away for a certain length of time. This differs for each CD and is called its term. CD terms can range all the way from one month to ten years. Generally, the longer the CD term, the higher the interest rate you can get.

Logically, you’d think that the best thing to do would be to put all your money in long-term CDs, right? Unfortunately, doing so has two specific risks.

You could miss out on rising rates. If the Federal Reserve raises interest rates (as they have been doing for the past two years), many banks and credit unions soon follow by raising the rates on their own deposit accounts. But, if you’re locked into a long-term CD, you could be stuck in a high-interest rate environment with the poor interest rates from yesteryear. That means you won’t be earning the maximum amount of interest possible.

It’ll be hard to tap into your savings in a pinch. Secondly, what if something happens and you need access to that cash? Can you predict what’ll happen in five years—a home purchase, major medical bills, or some other unexpected large expense? If your money is locked away in long-term CDs, you could be out of luck unless you pay a potentially-substantial early withdrawal penalty.

Luckily, there’s an easy solution that lessens these two risks: a CD ladder.

How to create a CD ladder in 3 easy steps

A CD ladder is a pretty intricate strategy. You split your money up into equal parts and match each pot of cash to a partnering CD. Then, you line them all up in a precise order and wait for the interest to accumulate.

Sound confusing? Let’s break it down with an example to show you exactly how it works with a basic five-year, five-CD ladder.

To start, let’s assume that you have $5,000 that you want to invest in a CD ladder (although this will work with any amount of money).

Step 1: Open up five separate CDs

Divide your cash into five equal parts. What we’re going to do is open five separate CDs. So, divide your cash into five equal pots of $1,000 each.

Search and compare to find banks with the best rates on CDs. Go to your bank of choice, either in-person or online. It’s possible to open up accounts at different banks or credit unions if they offer better rates on some CDs, but keep in mind that that will increase the complexity of this strategy. Open up five separate CDs with each pot of cash all at once and on a staggered schedule. Here’s what you’ll have when you leave the bank:

  • $1,000 in a one-year CD
  • $1,000 in a two-year CD
  • $1,000 in a three-year CD
  • $1,000 in a four-year CD
  • $1,000 in a five-year CD

Mark the date that you open all of these CDs on your calendar so that you can keep up with the CDs' maturity dates.

Step 2: Each year when a new one-year CD matures, renew it ....and convert it into a five-year CD

Every year on your CD maturity date, one of your CDs' terms will be up. For example, if you open a CD on May 26, 2018, then your one-year CD will come due on May 26, 2019. Your two-year CD will come due on May 26, 2020, and so on.

With most banks, when a CD becomes due, it will automatically roll over into another CD of the same term length (a one-year CD will automatically roll over into another one-year CD when it matures, for example). After it automatically rolls over, you will have a grace period of around one to two weeks where you can withdraw the money, add more money, and/or change the CD to a different term length — penalty-free.

Instead of letting your CD roll over into another one-year CD, you’re going to want to switch it up. Before the grace period ends, you'll want to renew it into a five-year CD instead. Then, in 2020, you’ll do the same thing: you’ll renew the now-mature two-year CD into a five-year CD, and so on.

If you open up all of your CDs in 2018, it’ll look like this:

  • 2019: renew the one-year CD into a five-year CD
  • 2020: renew the two-year CD into a five-year CD
  • 2021: renew the three-year CD into a five-year CD
  • 2022: renew the four-year CD into a five-year CD
  • 2023: renew the five-year CD into another five-year CD

The reason we do this is because the five-year CDs pay out vastly higher rates of interest than the shorter-term CDs. If you can keep all of your money in the highest-earning CDs, you’ll get the maximum amount of cash possible.

Step 3: Decide whether you need to pull the money out or not

The other reason we do this strategy is because if we need to withdraw the money, we get free access to one new CD per year on our CD maturity date. In our example, that means you can withdraw $1,000 (plus whatever interest the CD earned) once per year without paying an early-withdrawal penalty.

Each time a CD becomes due, you should ask yourself: Do I need to withdraw this cash for any reason? If the answer is no, then keep your money in a CD ladder. If it’s not already invested into a five-year CD, then go ahead and renew it into a five-year CD. If it already is invested into a five-year CD, then just let it auto-rollover into another five-year CD. As long as you don’t want to withdraw the cash, your CD ladder will be fully on autopilot from this point forward.

Mini CD ladders: Explained

The five-year CD ladder sounds great, but if you’re like a lot of other people, you might need more frequent access to your money than once per year. That’s where a mini CD ladder might come in handy.

Rather than setting it up so that a new CD becomes due once per year, you can choose shorter term CDs and stagger them so that they mature every few months instead.

Let’s look at another example—the three-month, four-CD ladder.

You would divide your cash into four equal pools and open up four new CDs with these terms:

  • Three-month CD
  • Six-month CD
  • Nine-month CD
  • Twelve-month CD

One new CD will become due every three months. When it does, you would renew it as a 12-month CD with a higher rate. That way, you can access your money once every three months instead of once every year.

If you want even more frequent access to your money, it might be possible to restructure this in a different way. Some banks have one-month CDs, although they’re not as common as three-month CDs. If you open 12 one-month CDs and renew each of them into 12-month CDs, then you could even get access to your cash every single month instead of every three months. The downside of the mini CD ladder is that you won’t earn as much, because five-year CDs carry better rates than a twelve-month CD.

What is the best CD ladder strategy for me?

CD ladders are already pretty straightforward. Open CDs of different lengths, and renew them to longer-term CDs when they come due.

But, it might surprise you to know that there are a lot of different CD ladder strategies. Whichever strategy works best for you depends on your individual situation, and what financial possibilities keep you up at night.

For example, do you worry that you’ll make a mistake by locking your money away in low-rate, long-term CDs if interest rates start to rise (a fair concern, given recent decisions by the Federal Reserve)? Or are you the type of micro-manager who optimizes every little decision so that they can maximize their monetary returns?

If so, good news. These are some of the best CD ladder strategies for different people.

Best if you don’t need frequent access to cash:

The five-year, five-CD ladder

This is the baseline CD ladder strategy we outlined above. You open up five CDs with staggered term lengths so that one new CD comes due each year, and then renew it into a five-year CD. After four years, all of your CDs will be in five-year CDs earning the maximum amount of interest.

This type of CD ladder strategy works best for folks who know they won’t need very frequent access to their money. If you choose this strategy, it’s a good idea to keep a separate emergency fund of three to six months’ worth of expenses tucked away in a high yield savings account. You definitely don't want to find yourself in a situation where you can't access money for a year when you really need it.

Best if you need frequent access to your cash:

The five-year CD ladder with low early withdrawal penalties

One of the main reasons to invest in CD ladders is so that you don’t have to pay steep early withdrawal penalties. These penalties are typically tallied up as a certain number of months of interest depending on the term of the CD. For example, TD Bank will charge you 24 months’ worth of interest if you take your money out early from a five-year CD

These early withdrawal penalties are pesky enough, but high fees like this could actually eat into the principal you’ve deposited into the account, especially if you haven’t earned enough interest to at least cover the early withdrawal penalty. This means you might actually end up with less money than you deposited into the account at the end of the day—not to mention how it’ll hurt your returns even if you have earned enough interest to cover the penalty.

One way to get around this is to search for CDs with low early withdrawal penalties. What exactly is a low early withdrawal penalty? According to Ken Tumin, founder and editor of DepositAccounts.com (also a LendingTree-owned company), a below-average early withdrawal penalty for a five-year CD is six months or less.

Searching for CDs with low early withdrawal penalties is the best strategy if you want to earn the most money possible but also think that there’s a high likelihood you might need to break into one of your five-year CDs outside of the once-yearly maturation date. With this strategy, you will minimize your loss if and when you need to withdraw the money early.

Maximum work for higher yields:

Juggling CDs at multiple banks

It’s very possible that the top prize for highest CD rate for each term length in your CD ladder is held by a different bank. For example, Bank A might have the highest rate for one and two-year CDs, while Bank B might have the highest five-year CD rate.

If you’re an intrepid optimizer, it’s possible to earn the most money by splitting up your CDs among different banks, according to Tumin.

If it sounds a bit complicated, it is. “Each year, you'll have to worry about transferring the money to the [bank with the] best five-year rate,” says Tumin. It also requires a lot of organization to remember the details of your many accounts. But, there is a way to limit the chaos.

Tumin’s recommendation is easy. “Choose at least two or three internet banks, but no more than three to keep things simple,” he says. “If one bank no longer becomes competitive, you can easily keep the CD ladder going with the other banks.”

It’s also a good idea to maintain a savings or money market account at the same bank for each of your CDs — as long as the account has no minimums and no monthly fees, since it will probably be empty much of the time. This bank account is strictly meant to be a temporary holding account for the CD money you hold within the same bank.

“If you need to access the money before maturity, it's much easier to have the CD funds (minus the early withdrawal penalty) transferred to a savings or money market account that is at the same bank,” Tumin advises. “Once it's in the savings/money market account, it's easy to open a new five-year CD at another bank.”

Hedging your bets against rising interest rates:

The barbell CD ladder

The barbell CD ladder is the best CD strategy if you’re worried about rising interest rates while most of your money is locked away into lower-rate CDs. With this strategy, you divide your money yet again: half into a high yield savings account (a separate savings account from your emergency fund), and half into a five-year CD ladder.

The advantage of keeping your money in a high yield savings account is that if interest rates rise, you can immediately withdraw that cash when you see fit and invest it into CDs.

Of course, the trick is knowing when to pull the trigger and move your money from the savings account into a CD. If you do it too soon, interest rates may rise again, and if you’re too slow, you may lose out on potential gains. It’s a balancing act and since it’s impossible to predict the future, there’s no way you can really know when the right time is for sure. You just have to do it and hope for the best.

How do CD ladders hold up to other investments?

CD ladders are just one of many investment choices you can make. To see how they stack up compared to other common options, we’ll show you what you can theoretically earn in 10 years with a $10,000 deposit using each of the following choices: a five-year, five-CD ladder, the stock market, a high yield savings account, and just keeping the cash stuffed under your mattress.

Five-year, five-CD ladder

For this scenario, let’s assume that you start out with the standard five-year, five-CD approach. You will start by putting $2,000 each into five CDs of the following term lengths: one year, two years, three years, four years, and five years. Each year when a CD comes up for renewal, you renew it into a five-year CD.

After the fifth year, we’ll assume that you continue keeping all of the CDs in five-year terms for another five years. According to Ken Tumin, the average yield on a 5-year CD ladder is about 2%, so we are using that as the hypothetical return on investment. Of course, rates ebb and flow all the time, so this is merely an estimation.

Risk:

One of the safest options. The FDIC and NCUA insures your money up to $250,000 at each bank or credit union, respectively.

Reward:

$1,290

The stock market

For long-term investments (retirement, for example), the stock market remains the gold standard for investing. Over the last six decades, the S&P 500 (one of the most common measures of the stock market as a whole) has returned about 7% per year.

We can’t predict the market’s returns, obviously, but we’re going to assume that someone investing in a broad-based S&P 500 stock market index fund would earn 7% on their investments each year for 10 years. Here’s how they would fare.

Risk:

Very high. People can and do lose significant amounts of money in the short term while investing in the stock market.

Reward:

$9,671.51

High yield savings account

High yield savings accounts offer the maximum amount of liquidity. If you might need your cash at any moment, it’s a good idea to keep it in a high yield savings account. The tradeoff is that you’ll earn less interest than you might with the five-year, five-CD ladder.

We used the highest rate (1.50% APY; current as of 12/12/17) for personal savings accounts available nationwide that were listed on DepositAccounts.com. We assumed a $10,000 deposit saved up over a 10-year period.

Risk:

Very safe. Anything you keep in a bank (including CDs or savings accounts) is insured up to $250,000 by the FDIC or NCUA for banks and credit unions, respectively.

Reward:

$1,605.41

Under your mattress

Who hasn’t heard stories from their grandparents about saving up their extra cash in a hidden mason jar or under their mattress? Back in the days when banks failed in the Great Depression, losing your life savings was a real concern. Thankfully, these days the FDIC and NCUA programs make your deposits safe at each bank or credit union up to $250,000.

Now, the danger lies in not earning any interest on your money. Inflation eats away your money’s value at a rate of around 3% or more per year. That means if you’re not earning at least 3% interest, your money is probably losing value rather than gaining value.

If you started out with $10,000 in 2007 and kept it stuffed away in your home for ten years, here’s what would happen.

Risk:

Very unsafe. That money could easily be stolen or lost in a fire, not to mention what’ll happen as inflation erodes its value.

Reward:

$1,805.67

Is creating a CD ladder worth it?

Whether or not a CD ladder is worth it depends on your individual situation and what your goals are.

According to Tumin, there are four things you need to keep in mind when deciding if a CD ladder is worth it for you: liquidity (how easy it is to access your cash), simplicity (how much work do you want to put into pulling off a master-CD-ladder?), maximizing your yield, and your investment time frame (do you want to invest indefinitely, or complete the CD ladder at a certain point in time?).

We’ve outlined several CD ladder strategies above that you can use to meet your goals. Compare them to your other options: will keeping your money in a high interest savings account, the stock market, or some other investment option work better for you?

In general, CDs today are earning far below what they used to. In July 1981, for example, you could get a one-month CD on the secondary market (i.e., buying it from an individual who has a CD, rather than a bank or credit union) with a whopping interest rate of 17.68% APY. Today the rates for a similar three-month CD are averaging 0.240% APY—quite a difference!

That means that today, CDs are generally not going to be your highest-earning option. This is especially true if you hold a large number of short-term CDs, as the mini CD ladder strategy calls for.

“I don't think other CD ladders with shorter-term CDs are worth it,” says Tumin. “They don't really provide much more liquidity,” especially if you opt to invest in five-year CDs with low early withdrawal penalties.

In fact, almost all CDs except for five-year CDs earn even less than a high yield savings account. Currently, banks are offering as high as 1.50% APY on high yield savings accounts—just under the current average interest rate for five-year CDs (1.57% APY).

If your CD investing strategy involves anything other than holding long-term five-year CDs (not counting the start of the CD ladder strategy when you hold CDs of several term lengths), then CDs may not be worth it when compared to a high yield savings account.

FAQ: CD ladders

If you really are terrible at saving money, CD ladders can be a great way to keep you disciplined. The extra sting with the early withdrawal penalty might be enough to help you overcome the urge to pull the money out before its term has ended.
Yes. CD ladders work well as a savings strategy for large purchases. You will need to do a lot of planning, however, to start the CD ladder and make sure all of your cash is outside of the CDs by the time you need it.
Yes. The money you earn in interest from your CD ladders is taxable. Your bank or credit union will issue you a Form 1099-INT at the end of the year for you to report on your tax return.

A grace period is the amount of time you have to withdraw, add funds, or change the CD to a different term length after it has matured. You typically have a one to two-week grace period after your CD matures.

It’s called a “grace” period because usually your CD will automatically roll over into another CD of the exact same term length. Normally this means you would then owe early withdrawal penalties if you take the money out early. Instead, banks offer you a “grace” period where you can withdraw the money without paying any early withdrawal penalties.

There are several other types of CDs:

  • Callable CDs offer higher interest rates, but the banks may cash them out for you at any time if they desire.
  • Bump-rate CDs offer staggered, increasing interest rates over time.
  • No-penalty CDs have lower interest rates, but no early withdrawal penalties.

It is possible to use them in your CD ladder, however you need to choose these CDs carefully. For example, what kind of monkey wrench would be thrown into your plan if you invest in a callable CD and it is indeed cashed out by the bank early? Or, would a no-penalty CD really offer rates that beat out a high yield savings account?

A jumbo CD is just a regular CD, but for a very large amount of money. Each bank or credit union has their own definition of what a “jumbo” CD is. For example, to invest in a USAA jumbo CD, you’ll need to bring at least $95,000 to the table. CIT Bank, on the other hand, requires a slightly larger minimum deposit of $100,000 to qualify for a jumbo CD.

Jumbo CDs typically offer much higher rates than regular CDs and can help you earn even more money in a CD ladder if you’re able to take advantage of them.

It depends on the type of CD ladder you use, and the savings account you’re comparing it with. In general, though, the five-year, five-CD ladder strategy will beat out even a high yield savings account in the long run.

For most people, no. We compared the outcomes from a five-year, five-CD ladder above with the typical returns you could expect from a stock market. A hypothetical $10,000 investment in a CD ladder earns $1,531.11 in interest over a 10-year period.

Compare that to typical stock market returns for the same amount of time and money: $9,781.51. The stock market far, far outperforms the CD ladder. If you’re saving for a very long-term goal like retirement, it makes more sense to grow your money in a high-yielding investment like the stock market, even if it is riskier.

This post has been updated. It was originally published Dec. 19, 2016.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Investing, Life Events, Retirement, Strategies to Save

Think Twice Before You Max Out Your 401(k)

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Financial planners can’t emphasize the importance of saving for retirement enough: The earlier you start saving and the more you contribute, the better. But should you max out your retirement account? And if so, how do you do it? 

Unfortunately, there’s no solution suitable for all; every individual has a different financial situation.  

But let’s start with the basics: The maximum amount of money you can contribute to your 401(k), the retirement plan offered by your company, is currently $18,000 a year if you are under age 50, and $24,000 if you are 50 or older. If you were starting from scratch, you would have to tuck away $1,500 a month to max it out by year’s end.  

This is a big chunk of money. And although there are multiple benefits to saving for retirement, you may want to think twice before hitting that maximum.  

Remember, this is money that, once contributed, can’t be withdrawn until age 59.5 without incurring penalties (with some exceptions).  

What’s more, putting away a significant portion of their savings to max out their retirement fund doesn’t make much sense for some workers.  

If you are fresh out of college and your first job pays $50,000 annually, you’d need to save 36 percent of your paychecks to max out your 401(k) for the year.   

“Everyone needs to save for retirement, and the more dollars you could put in, the earlier, the better, but you also need to live your life,” says Eric Dostal, a certified financial planner with Sontag Advisory, which is based in New York. “To the extent that you are not able to do the things that you want to accomplish now, having a really really robust 401(k) balance will be great in your 60s, but that would cost now.”  

A few things to consider BEFORE you max out your 401(k)

  1. Do you have an emergency fund for rainy-day cash? If not, divert any extra funds to establish a fund that will cover at least three to six months’ worth of living expenses.  
  2. Do you have high-interest debt, such as credit card debt? High-interest debts, like credit cards, might actually cost you more in the long run than any potential gains you might earn by investing that money in the market.  Still, if you can get a company match, you should try to contribute enough to capture the full match. It never makes sense to leave money on the table.  
  3. Do you have other near-term goals? Are you planning to buy a house or have a child anytime soon? Do you want to travel around the world? Do you plan to pursue an advanced degree? If so, come up with a savings strategy that makes room for your nonretirement goals as well. That way you can save money for those big-ticket expenses and will be less likely to turn to credit cards or other borrowing methods. 

Maximize your 401(k) contributions

If your emergency fund is flush, your bills are paid and you’re saving for big expenses, you are definitely ready to beef up your retirement contributions.   

First, you’ll want to figure out how much to save.   

At the very least, as we said above, you should contribute enough to qualify for any employer match available to you. This is money your employer promises to contribute toward your retirement fund. There are several different ways a company decides how much to contribute to your 401(k), but the takeaway is the same no matter what -- if you miss out on the match, you are leaving free money on the proverbial table. 

If you are comfortable enough to start saving more, here is a good rule of thumb: Save 10 percent of each paycheck for retirement, though you don’t have to get up to 10 percent all at once.  

For instance, try adding 1 percent more to your retirement fund every six months. Some retirement plans even offer automatic step-up contributions, where your contributions are automatically increased by 1 or 2 percent each year. 

Larry Heller, a New York-based certified financial planner and president of Heller Wealth Management, suggests that you increase your contribution amount for the next three pay periods and repeat again until you hit your maximum.  

“You will be surprised that many people can adjust with a little extra taken out of their paycheck,” Heller said.   

Once you’re in the groove of saving for retirement, consider using unexpected windfalls to boost your savings. If you get an annual bonus, for example, you can beef up your 401(k) contribution sum if you haven’t yet met your contribution limit.  

A word of caution: If you’re nearing the maximum contribution for the year, rein in your savings. You can be penalized by the IRS for overcontributing. 

If your goal is to save $18,000 for 2017, check how much you’ve contributed for the year to date and then calculate a percentage of your salary and bonus contributions that will get you there through the year’s remaining pay periods.  

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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