Updated January 22, 2020
If youâ€™re looking for a better yield on your savings and have time to burn, a high-rate CD at an online bank would be a great option. With a CD, you agree to lock up your funds in an account for a specific period of time, and in return the bank offers a higher yield than youâ€™d find on a standard savings account. If youâ€™re not keen on the idea of completely locking your money away for a set amount of time, you may want to consider a no-penalty CD. These accounts give you the benefit of locking down a rate for a set amount of time without requiring you to lock in your money for the length of the term.
CDs are often seen as the next level up after savings for that reason. If youâ€™ve maxed out your savings account with enough funds to see you through the next year or so, it can be wise to start shoveling savings into a CD to maximize your returns.
For the best CD rates in the industry, check out online banks. They tend to offer much better interest rates than traditional banks, thanks to the lack of typical brick-and-mortar costs.
For example, letâ€™s say you find a 12-month CD at a big brick-and-mortar bank that requires a $1,000 minimum deposit and pays 0.05% APY. If you were to open that account with just the minimum, youâ€™d earn 50 cents after a year. Even a bigger deposit of $10,000 would only yield $5 at maturity.
At an online bank, on the other hand, you could earn 2.80% often with a minimum deposit of $1,000. Opening the account with $1,000 would yield $28, while a $10,000 deposit would earn $280 in a year, a much better return on your money no matter how you look at it. (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).
To find the best CD rates, we look for the banks and credit unions that consistently offer competitive CD rates month over month. This list is updated monthly, and competition continues to intensify. Here are the accounts from banks with consistently competitive CD rates:
Discover is best 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 and strong on-shore customer service.
Although Discover does not always have the highest rate, it is very close (within basis points) across all durations. If customer service and digital tools (like apps) are important to you, Discover is an excellent consideration. Note: you can even get a CD rate with a duration as short as 3 months. However, you would be better off opening a high yield savings account if you plan on saving the money for less than a year.
Keep in mind that all CD terms come with an early withdrawal penalty if you choose to withdraw money before your maturity date. If your Discover CD is less than one year, the penalty is worth three months of simple interest. If the term is between one to three years, the penalty is worth six months of simple interest. Four-year CDs have a penalty that is worth nine months of simple interest. Five year CDs have a penalty that is worth 18 months of simple interest and seven to 10-year CDs have a penalty that is worth 24 months of simple interest.
No-penalty CDs are unique because these accounts allow customers to withdraw from their CD without incurring an early withdrawal penalty. These CDs are an attractive offer to customers as it provides no risk if they choose to withdraw their money early. Here are some of the best no-penalty CD rates that are available nationwide:
The following banks and credit unions are currently offering the highest CD rates for each term.
We recently looked at the 100 largest U.S. metros to find the cities with the highest percentage of households that own certificates of deposit.
Among the 100 largest U.S. metros, San Francisco came out on top, with 25.4% of households owning certificates of deposit. Thatâ€™s more a little more than twice as many households, on a percentage basis, than Greensboro, N.C., our bottom-ranked city, where only 12.5% of households own CDs.
Typically, households in large cities are more likely to sock money away in CDs. Chicago, Los Angeles, New York and Washington, D.C. â€” among the 10 largest metros in the U.S. â€” all make our list of top 10 cities where people own CDs. There are some exceptions: Odgen, Utah ranks No. 4 in the nation for CD saving: 21.9% of Ogden households have CDs.
Variability in local CD rates may explain some of the differences, as the highest rates available by state can vary by as much as one percentage point. In fact, in Jan. 2019, Utah had the highest average local 1-year CD yield in the country.
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 rate â€“ and the higher the penalty for closing the CD early. With a savings account, youâ€™re limited to six withdrawals or transfers per month. Otherwise, you can empty the account at any time without paying a penalty. You canâ€™t lock in the interest rate on a savings account, though, since the bank can change the interest rate at any time.
CDs work best if youâ€™re confident you wonâ€™t need to access a certain amount of money for a specified period of time. Letâ€™s say you have $10,000 laying around that you can safely say you wonâ€™t need to use for two years. In a high-yield savings account earning 2.45%, you would earn $496.00 over two years with annual interest compounding â€” and potentially even more, if your bank compounds interest more frequently. If you put that money into a 2.90% 2-year CD, you would earn $588.41 (compounding yearly) once the account matures. The extra interest income is easy money, considering the ease of opening an account online. However, if you think you might need to use the money in the next couple of months, especially if your finances are already a little rocky, a savings account is a much better idea for its better flexibility.
Itâ€™s important to note that deposit rates are a bit in flux right now, due to the uncertainty surrounding the federal funds rate (more on that below). But weâ€™re currently seeing some high, favorable interest rates on 1-year CDs, rates that outstrip savings account rates.
If you can afford to part with the funds, â€śchoosing a 1-year CD now does make sense rather than keeping the money in a savings account,â€ť says Ken Tumin, founder of LendingTree-owned DepositAccounts.com. â€śHowever, it is possible that 1-year rates could go below some savings account rates.â€ť
Thatâ€™s why itâ€™s important to compare rates before you sign up for a certain account.
Tumin also notes that there is an added tax benefit to opening a 1-year CD now over a savings account. With a 1-year CD, you can choose to have interest paid at maturity, or in 2020 on accounts opened now. Taxes would be owed on that interest for 2020, but not paid until 2021. Savings accounts, on the other hand, pay out interest each month. So a savings account opened today will generate interest income for the 2019 tax year.
The early withdrawal penalties on CDs can be significant. On a 1-year CD, 90 daysâ€™ worth of interest is a typical penalty, although it can reach as high as 180 days. On 2- and 3-year CDs, a 6-month penalty is about average. The impact of the penalty on your return can be significant: if you opened a one-year CD with a 2.65% APY and closed it after six months, you would forfeit half of the interest and earn only 1.32%. You would have been better off with a savings account paying 2.25%.
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 risk of early withdrawal penalties, itâ€™s important that youâ€™re completely confident that you will not need to withdraw the money early. Check that you already have enough savings in a flexible emergency fund to cover you for the next few years in the event of an accident or surprise trip to urgent care. Ask yourself whether your deposit would be put to better use paying off any debts. If youâ€™re not completely convinced you can sock away that much money for such a commitment, go for a shorter CD term or a savings account.
As of right now, if youâ€™re trying to jump on the best rates and have cash to stash away for years, your best bet is to lock in a 5-year CD to get the best rates possible.
â€śIt doesnâ€™t look like weâ€™ll see another Fed rate hike in the first half of the year,â€ť says Ken Tumin. â€śIn the last month or two, weâ€™re seeing some drops in CD rates.â€ť
However, this downward movement looks like more of a correction being made by banks who may have boosted their CD rates too far too fast, instead of signaling the start of an industry-wide drop in rates.
â€śWe wonâ€™t see a big drop until we see signs that the Fed will start cutting rates,â€ť Tumin notes.
Tumin suggests finding long-term CDs with small or mild withdrawal penalties, like Ally. That way, in the event you do need to break into your funds (whether for an emergency or to move to a new, higher rate), you wonâ€™t lose the majority of your savings. So while there are still 5-year CDs out there with 3% APY and higher, youâ€™re going to want to lock those in for the long term.
The interest rates shown in this article are all from credit unions and online banks that offer products nationally. However, 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. Internet-only banks have dramatically better interest rates. That should not be surprising â€” 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 and lower fees.
If youâ€™re worried about early withdrawal penalties, credit union CDs might be your best bet; on average, they tend to have lower penalties than banks. Pair that with high credit union CD rates, and youâ€™ve got a winning savings combo. (Interestingly, while internet banks tend to offer the best CD rates, they also tend to assess bigger early withdrawal penalties than brick-and-mortar banks.)
If you donâ€™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.
Even though CDs are traditionally pretty structured, you still have hundreds of options available to you. If your savings goal is years in the future, look closer at longer terms like 5- and even 10-year accounts. If you donâ€™t quite have thousands of dollars to stash away, you can find a bank that requires a lower minimum deposit, if at all. You can also find select no-penalty CDs, which tend to be around one year long or less.
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