A CD is a type of savings account that has a fixed rate and a maturity date. Typically, the rate (APY) on a CD is higher because you must keep your funds in your CD account for the specified duration or term of the CD. As long as you abide by the set rules, such as minimum deposits and keeping your funds locked in your account until the maturity date, you can lock in your CD rate and not have to worry about changing rates. Be careful not to withdraw your money before maturity, as you can be hit with an early withdrawal penalty. Read more below on CD FAQs as well as details on the best CD rates.
Best CD rates of 2019
Bankrate has conducted market research on over 4,000 banks and credit unions nationwide to find accounts with the best CD rates. Here is Bankrate's list of top banks with overall great rates:
Best for lower balances:Goldman Sachs Bank USA. 6 months – 6 years, 0.60% APY – 2.35% APY, $500 minimum deposit to open
Best for IRA CDs:Synchrony Bank. 3 months – 5 years, 0.75% APY – 2.25% APY, $2,000 minimum deposit to open
Best for longest renewal grace period:Barclays Bank. 3 months – 5 years, 0.35% APY – 2.20% APY, no minimum deposit needed to open
Best for long-term CDs:Comenity Direct. 1 year – 5 years, 2.10% APY – 2.20% APY, $1,500 minimum deposit to open
Best for consistent APYs across all terms:Citizens Access. 6 months – 5 years, 1.60% APY – 2.25% APY, $5,000 minimum deposit to open
Best for no minimum balance:American Express. 6 months – 5 years, 0.40% APY – 2.15% APY, no minimum deposit needed to open
Best overall CD rates:Amerant Bank. 1 year – 5 years, 2.30% APY – 2.35% APY, $10,000 minimum deposit to open
Best for banking product selection:Ally Bank. 3 months – 5 years, 0.75% APY – 2.25% APY, no minimum deposit needed to open
Best for one-year CDs at any balance:Capital One. 6 months – 5 years, 0.60% APY – 1.60% APY, no minimum deposit needed to open
Best for higher balances:Purepoint Financial. 6 months – 5 years, 1.70% APY – 2.25% APY, $10,000 minimum deposit to open
Best for shorter-term CDs:Investors eAccess. 6 months – 10 months, 1.80% APY – 1.80% APY, $500 minimum deposit to open
Best for CD variety:CIT Bank. 6 months – 5 years, 0.72% APY – 1.70% APY, $1,000 minimum deposit to open
Bankrate regularly surveys approximately 4,800 banks and credit unions in all 50 states to provide you with one of the most comprehensive comparisons of interest rates. All of the CD accounts below are insured by the FDIC at banks or the NCUA at credit unions. When selecting the best CD account for you, look for the highest yield while also considering introductory rates, minimum balances and accessibility.
At Bankrate, we strive to help you make smarter financial decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. The top banks listed below are based on factors such as APY, minimum balance requirements and broad availability.
Summary of Best CD Rates for November 2019
Goldman Sachs Bank
1.95% - 2.10%*
$0 - *Variable
Capital One Bank
What happens if the Federal Reserve decreases interest rates?
The Federal Reserve lowered interest rates for the second time in 2019 on Sept. 18. This comes following a total of nine rate increases from 2015 to 2018 that helped bring rates near their recent peak in early 2019.
When the Fed decreases rates, it lowers the federal funds rate. Savings account and money market account yields tend to move with this benchmark rate.
CD yields tend to correlate more with Treasury yields. Rates on high-yield CDs have been declining since late March and early April. That’s when Treasurys began to fall after Fed projections signaled it wouldn’t increase rates in 2019.
If you think rates are going to decrease further in the next year or two, a CD can help you earn a fixed APY during its term. Savings accounts and money market accounts generally have variable rates, meaning the yield you earn can decrease. Introductory rates on those accounts are an exception to this rule. These may give you a fixed rate during the introductory period, though there may be certain requirements to keep this rate.
Best CD rates from top banks
Before applying for a certificate of deposit, be sure to read expert advice and tips below to ensure a financially safe decision. Here are Bankrate's top picks for banks with the best CD rates:
6 months – 6 years: Goldman Sachs Bank, 0.60% APY – 2.35% APY; $500 Minimum Deposit to Open
Overview: Marcus is the consumer banking arm of investment firm Goldman Sachs. It offers a range of savings products and personal loans. That includes a number of CD options and a high-yield savings account. And like other online banks, its rates are highly competitive. Marcus often is found within the group of banks offering the highest CD rates across all terms. In fact, Marcus guarantees that you'll receive the highest rate it offers on a CD within 10 days of opening an account, as long as you deposit $500 during that time. So, if you purchase a CD and the bank's rate goes up within 10 days after you purchase, you'll receive the higher rate.
Perks: In addition to high yields, Marcus offers a wide range of terms on its CDs — from six months to six years — providing plenty of flexibility. And its 10-day guaranteed rate on CDs means you won't miss out on a higher return. On a high-yield CD, you can add to it during the first 30 days – even if you’ve reached the $500 minimum requirement.
What to watch for: Because it's an online bank, Marcus doesn't have any branches. It also doesn't have a mobile app. That means you'll need to call customer service on weekdays or look at the FAQ section to get answers about your account. Marcus also doesn't offer a checking account. If you're looking for a full-service bank, you may be better served elsewhere. On its high-yield CDs, if you withdraw from a CD early, Marcus has a penalty of 90 days of simple interest on a CD that has a term less than 12 months, a penalty of 270 days of simple interest on a CD ranging from one year to five years and a penalty of 365 days of simple interest on a CD with a term longer than five years.
If you’re concerned about early withdrawal penalties, Marcus has a no-penalty CD. This CD has a 13-month term, a $500 minimum deposit requirement and yields 1.85 percent APY. You’re able to withdraw from a Marcus no-penalty CD beginning seven days after the day you fund the CD. But you can’t make a partial withdrawal.
Also, once the balance on your no-penalty CD hits the minimum balance requirement of $500, you can’t add to this CD.
3 months – 5 years: Synchrony Bank, 0.75% APY – 2.25% APY; $2,000 Minimum Deposit to Open
Overview: Synchrony Bank, formerly known as GE Capital Retail Bank, offers a number of depository products for consumers, including CDs, money market accounts and savings accounts. As an online bank, it has limited branches. It also doesn't offer a checking account. But it does consistently offer some of the best rates available on CDs, with terms ranging from three months up to 60 months. And Synchrony has a highly rated customer service department available by online chat or by phone seven days per week. Customers of Synchrony get access to loyalty perks, including complimentary identity theft resolution services and travel and leisure discounts. "Diamond customers" get a dedicated customer service number, access to webinars, three free wire transfers per statement cycle and unlimited ATM reimbursements.
Perks: High rates are undeniably one of the biggest perks of CDs at Synchrony. But Synchrony also frequently offers CD specials that come with specialty terms. Those specials often come with high rates and provide an alternative to the typical CD terms. In addition, you'll find 24/7 online account management access, no monthly service fees and perks for being a customer.
What to watch for: Synchrony Bank isn't a full-service bank. It doesn't offer a checking account. That means you won't have much liquidity. But sometimes that can be a good thing, if you're looking to keep your hands off your cash while it grows.
Synchrony has early withdrawal penalties on its CDs. If you withdraw early from a CD with a term of 12 months or fewer, you’ll pay a penalty of 90 days of simple interest at the current rate. If you made an early withdrawal on a CD with a term of more than a year but fewer than four years, you’d incur a penalty of 180 days of simple interest at the current rate. If you broke a Synchrony CD with a term of more than four years before it matured, you’d pay 365 days of simple interest at the current rate.
If you withdraw interest that’s been earned and credited during the CD’s current term, you won’t incur a penalty.
3 month – 5 years: Barclays, 0.35% APY – 2.20% APY; No Minimum Deposit to Open
Overview: Barclays is popular for its credit cards and personal loans, but it's also a strong contender in the category of deposit accounts. In fact, the bank offers a full suite of products, including a slew of online CDs and an online savings account. Its rates are competitive across the board. In the U.S., its banking operation is only online. That means Barclays can save on overhead costs and consistently pass that savings on to customers by offering some of the top available rates on CDs and savings accounts. The bank's CD terms range from three months to 60 months and require no minimum deposit, something that's hard to find out of a high-yield CD.
Perks: Very competitive interest rates, no minimum deposit requirement and daily compounding interest make CDs from Barclays hard to beat. You'll also get the benefit of an online banking experience and no hidden monthly fees.
What to watch for: Barclays, like many other online-based banks, isn't a full-service banking institution. It doesn't have a checking account, ATM network, mobile app or branch locations. If you're comfortable banking online, and only want to use Barclays for its savings products, credit cards or personal loan features, it can be a good fit. Otherwise, you might want to look elsewhere. And though Barclays CD rates are very competitive, you may be able to lock in a higher rate from another online institutions.
At Barclays, there’s a penalty of 90 days of simple interest on the amount withdrawn early from a CD with a term of two years or fewer. A Barclays CD that has a term longer than two years will have an early withdrawal penalty of 180 days of simple interest on the amount withdrawn before maturity. Barclays doesn’t offer a no-penalty CD.
1 year – 5 years: Comenity Direct, 2.10% APY – 2.20% APY; $1,500 Minimum Deposit to Open
Overview: Comenity Bank is best known for its co-branded, private label and business credit card programs. Comenity Bank and Comenity Capital Bank partner with more than 160 retailers worldwide on those credit cards. Comenity Direct was created in 2018. And in April 2019, Comenity Direct launched a High-Yield Savings Account and five CDs.
Perks: Comenity Direct has competitive yields on five terms of CDs, and its CDs are FDIC-insured and interest accrues and is compounded on a daily basis. Comenity Direct made its April 2019 debut by offering top-tier yields on all of its CD selection.
What to watch for: Comenity Direct has an early withdrawal penalty on its CDs. The penalty on CDs from a year to three years is 180 days of simple interest and 365 days simple interest on terms four years and longer. Partial withdrawals of principal aren’t allowed.
6 months – 5 years: Citizens Access, 1.60% APY – 2.25% APY; $5,000 Minimum Deposit to Open
Overview: Citizens Financial Group, which has roots dating back to 1828 via High Street Bank, launched Citizens Access – its direct bank – in July 2018. Citizens Access debuted among some of the highest-yielding accounts and is still near the top of the leaderboard.
Perks: Citizens Access takes pride in its fee-free approach. Its CDs also give you the option of having your interest credited toward your principal or you can transfer it to another account.
What to watch for: The Citizens Access 6-month CD has one of the top APY’s around. If you withdraw from your Citizens Access CD before it matures, a CD with a term of one year or shorter will be subject to a penalty of 90 days of interest on the CD balance. A long-term CD at Citizens Access will receive a penalty of 180 days of interest on the CD balance if there is an early withdrawal.
Citizens Access doesn’t offer a no-penalty CD.
6 months – 5 years: American Express, 0.40% APY – 2.15% APY; $0 Minimum Deposit to Open
Overview: While American Express is perhaps most known for its credit cards, the company also provides savings accounts and CD options to consumers. The FDIC-insured national bank offers very attractive rates on all of its savings products. Its CD rates are often the top-paying in the country. As an extra bonus, it doesn't have any fees or minimum balance requirements.
Perks: Extremely competitive interest rates, no minimum balance requirements, no fees and an easy application process make CDs from American Express hard to beat. American Express also offers a wide range of terms to fit your needs, whether you're looking for a short 6-month deposit account or a longer 60-month option.
What to watch for: Like some other similar banks in the space, American Express doesn't have a checking account option or an ATM card. Checks need to be mailed in. And customer support is limited to the phone. If you're looking for a full banking experience, you might be better served at another bank.
If you withdraw from an American Express CD that has a term of less than one year before it matures, you’ll incur a penalty of 90 days of interest on the amount withdrawn. CDs with a term of a year but shorter than four years will incur a penalty of 270 days of interest on the amount withdrawn if the amount is taken out before that CD matures. A CD that’s at least 48 months long but shorter than 60 months will have a penalty of 365 days of interest on the amount withdrawn. And a CD with a term of five years or longer will have a penalty of 540 days of interest applied if you withdraw your principal balance or if the account is closed before it’s set to mature.
American Express doesn’t offer a no-penalty CD.
1 year – 5 years: Amerant Bank, 2.30% APY – 2.35% APY; $10,000 Minimum Deposit to Open
Overview: Amerant is the largest community bank headquartered in Florida. Established over 40 years ago, the FDIC-insured institution has banking offices in Florida and Texas. Amerant offers competitive APYs on CDs and a range of term options. However, offers shown are not available in Florida or Texas.
Perks: Amerant offers competitive APYs on its CDs with term options from one year to five years. Both its two-year and five-year CDs offer a 2.35
What to watch for: To earn interest on Amerant’s CDs, you must open an account online with at least $10,000. The maximum total dollar limit per customer is $500,000. Special rates are offered only online and for a limited time. CD rates mentioned are not available in Florida or Texas unless specified.
3 months – 5 years: Ally Bank, 0.75% APY – 2.25% APY; No Minimum Deposit to Open
Ally Bank CD Rates
1.90% - 2.05%*
1.95% - 2.10%*
* APY depends on minimum balance, ranging from less than $5,000 to $25,000
Overview: Since changing its name from GMAC Bank to Ally Bank in May 2009, Ally Bank has become well-known for offering high-yield savings products to consumers. It not only offers a suite of high-yield CDs, including a raise-your-rate CD and no-penalty CD, it also provides an online savings account, money market account and a checking account. CDs terms from the bank range from three months to five years, offering some flexibility. In addition to its savings products, it also provides credit cards, auto financing, home loans and investment products. If you're searching for a full-service online banking experience, Ally is worth consideration.
Perks: Ally consistently offers competitive rates. It also doesn't charge any maintenance fees and compounds interest daily. Online and on its app, Ally posts how long the wait time is for a customer service representative via telephone.
What to watch for: Notably, Ally doesn't require a minimum deposit to open a CD. But Ally Bank’s 18-month CD and its 3-year CD require a $25,000 minimum opening to get the highest APY. Its 1-year CD has both no minimum deposit to open it but a slightly lower APY, 5 basis points lower than the highest-yielding CD at 18 months and 3-years. Ally Bank does have an 11-month no-penalty CD. But to get the highest yield of 1.90% APY, you need to deposit at least $25,000.
If you withdraw from an Ally High Yield CD that has a term of two years or fewer before it matures, you’ll incur a penalty of 60 days of interest. If you have a CD between 25 months and three years, you’ll be charged a penalty of 90 days of interest if you withdraw from it early. An early withdrawal from a CD of 37 months to four years will cost 120 days of interest, and withdrawing from a CD that’s 49 months or longer will cost you a penalty of 150 days of interest.
Ally offers an 11-month, no-penalty CD. It offers a 1.90 percent APY, but you’ll need to open it with $25,000 to ear that yield. Ally has a no-penalty CD available for a $5,000 minimum opening deposit (1.70 percent APY) and an option for those who want to open their CD with less than $5,000 (1.65 percent APY).
You can withdraw your money from an Ally no-penalty CD only after the first six days of funding this 11-month CD.
6 months - 5 years: Capital One Bank, 0.60% APY - 1.60% APY; $0 Minimum Deposit to Open
Overview: Capital One is often associated with credit cards, but it also provides a range of depository and lending products to consumers through Capital One, an online banking subsidiary. Capital One offers a wide range of CDs, a savings account, a savings IRA and a checking account. Yields from Capital One tend to be highly competitive. In fact, CD rates from the bank are consistently among the top nationally available options. Along with stellar rates, Capital One's banking products come with the security of being insured by the Federal Deposit Insurance Corp.
Perks: High yields and low fees make CDs from Capital One top contenders. And it offers a wide range of term options, from six months to 60 months. But Capital One also provides quality banking tools for money management and excellent customer service. In fact, it has a number of Capital One Cafes spread throughout the country, where you can go to bank, get answers to financial questions and connect with other people.
What to watch for: Capital One has limited branch access, other than Capital One Cafes, which are located in 10 states. Deposits and transfers are mainly done through the bank's mobile app. And while Capital One's CD rates are very competitive, it's often possible to find better yields from other banks. Capital One CDs with a term of a year or shorter have a penalty of three months’ worth of interest. Capital One CDs with terms longer than a year have a penalty of six months’ worth of interest.
6 months – 5 years: PurePoint Financial, 1.70% APY – 2.25% APY; $10,000 Minimum Deposit to Open
Overview: PurePoint Financial is a hybrid digital bank and a division of MUFG Union Bank, N.A. PurePoint Financial is a member of the Mitsubishi UFJ Financial Group Inc, which according to PurePoint’s website is the fifth largest bank in the world, based on total assets. As PurePoint says on its website, "And while we’re a new brand, we’re not new to banking."
Perks: PurePoint Financial pledges "to help Americans save more and grow the personal savings rate in the U.S. over the next five years." PurePoint Financial also has more than 20 PurePoint Financial Centers in the New York, Chicago, Dallas, Houston, Miami, and Tampa Bay areas.
What to watch for: PurePoint Financial has a 2.05% APY 12-month CD that is among the most competitive CDs out there. If you have the $10,000 to meet the minimum deposit requirement, this might be a good place for your savings that you don’t plan on using for the next year.
PurePoint Financial has an early withdrawal penalty of 181 days of simple interest if you withdraw from a CD before it matures. It also has three no-penalty CDs available, at terms of 11, 13 and 14 months. The 13-month no-penalty CD has the highest yield among the no-penalty CDs at 1.90% APY.
You’re able to withdraw your balance on a no-penalty CD within the first six days after funding it, but you’d incur a penalty of 181 days of simple interest. The no-penalty-withdrawal period begins seven days after you fund this CD.
6 months – 10 months: Investors eAccess, 1.80% APY – 1.80% APY; $500 Minimum Deposit to Open
Overview: Investors eAccess is the online-only division of Investors Bank. It offers two certificate of deposit products: A six-month, no-penalty CD that pays 1.80 percent APY and a 10-month CD at 1.80 percent APY. The bank also offers a money market account. Like many online banks, Investors eAccess’ CD rates are very competitive. Additionally, the minimum balance requirements are low.
Perks: Investors eAccess’ six-month no-penalty CD won’t penalize you for closing your account before your term ends, giving you more liquidity compared with traditional CDs. The account also pays a competitive 1.80 percent APY. The bank’s 10-month CD isn’t a no-penalty account, but it still pays 1.80 percent APY. Both accounts require only a $500 minimum deposit to open, making the top yields highly accessible. Interest on both CDs compounds daily.
What to watch for: You can’t make partial withdrawals from the six-month CD, so you’ll have to close the account if you need to access your money. However, any interest you’ve earned can be withdrawn at any time without closing the account. You can’t make a penalty-free withdrawal until at least seven days after you’ve funded the CD.
If you need to withdraw from your Investors eAccess 10-month CD before it matures, you’ll incur a penalty of 90 days of simple interest.
Investors eAccess does offer a six month no-penalty CD paying 1.80 percent APY. You can make a withdrawal without incurring an early withdrawal penalty at Investors eAccess, but this withdrawal needs to be after the first six calendar days after the open date for the CD. You’re not able to make a partial withdrawal on your Investors eAccess six-month no-penalty CD.
6 months – 5 years: CIT Bank, 0.72% APY – 1.70% APY; $1,000 Minimum Deposit to Open
Overview: CIT Bank is a nationwide direct bank, and is a division of CIT Bank, N.A. CIT Bank was founded in 2009. CIT Bank, N.A. is a subsidiary of CIT Group, Inc., a financial holding company founded in 1908.
Perks: CIT Bank’s 1-year CD currently is earning 1.80%. It also has daily compounding on that CD, to maximize your earnings.
What to watch for: CIT’s CD APYs peak at the 18-month CD at 1.85% APY. This, and the 13-month CD, are the top CD options at this bank.
CIT Bank has both no-penalty CDs and term CDs that have a withdrawal penalty.
At CIT Bank, term, jumbo, ramp-up and ramp-up plus CDs with a term up to one year incur a penalty of three months of simple interest on the amount withdrawn before maturity. If you make an early withdrawal from one of these CDs with a term more than one year and up to three years, you’ll incur a penalty of six months’ worth of simple interest on the amount you withdraw.
Finally, an early withdrawal on one of these CDs with a term of more than three years at CIT Bank would incur a penalty equal to 12 months’ simple interest on the amount withdrawn.
CIT Bank offers a no-penalty, 11-month CD at 1.85 percent APY. You can’t withdraw from CIT Bank’s no-penalty, 11-month CD during the first six days after CIT Bank has received your deposit. You can withdraw the total balance and interest earned from this no-penalty CD starting seven days after CIT Bank has received your money.
CIT Bank CDs renew to the same term automatically, except for the 13-month CD and the 18-month CDs. Upon maturity, the former automatically renews as a 1-year CD and the latter is renews as a 2-year CD.
Banesco USA – 1.90% APY, $1,500 Minimum Deposit to Open
Overview: Banesco USA was founded in 2006. It has four business centers in South Florida and one in Puerto Rico. Banesco USA is FDIC insured.
Perks: Banesco USA has a reasonable minimum deposit of $1,500 and a competitive yield on its short-term CDs. Its 1.90 percent APY is an option to consider if you know that you won’t be withdrawing money in the next year.
What to watch for:Balances above $250,000 aren’t eligible for this APY.
Overview: Limelight Bank is an online bank that is based in Utah. Limelight Bank is a division of Capital Community Bank. It actively ties its business to eco-friendly initiatives, according to its website. Capital Community Bank was established in 1993 as Orem Community Bank, according to the FDIC. Limelight Bank was established in 2017, according to the FDIC.
Perks: Limelight Bank is for those who are looking for a competitive yield, reasonable minimum balance requirement and a bank that has what it calls “an environmental conscience.” A portion of funds deposited at Limelight Bank go toward solar energy initiatives.
Limelight has a 2.05 percent APY on its 12-month CD and you only need $1,000 to open the CD.
What to watch for: There is a penalty equal to 90 days of interest on the amount you withdraw before the 1-year CD reaches maturity.
Rising Bank – 2.15% APY, $1,000 Minimum Deposit to Open
Overview: Rising Bank is a division of Midwest BankCentre. Rising Bank launched in 2019.
Perks: This Rising Bank CD is yielding a 2.15 percent APY. There is a $1,000 minimum requirement to open a Rising Bank 12-month CD.
What to watch for: Interest is only compounded and credited every three months. Rising Bank’s CDs have an account maximum of $500,000. Rising Bank may impose a fee equal to 90 days of interest on the amount you withdraw early.
WebBank – 1.95% APY, $2,500 Minimum Deposit to Open
Overview: WebBank was established in 1997. WebBank, an FDIC-insured bank, has its headquarters in Salt Lake City, Utah.
Perks: WebBank has a higher minimum balance requirement than some banks. But if you have at least $2,500, you may want to consider depositing your money in a 1-year CD yielding 1.95 percent APY. Interest is compounded daily on this CD.
What to watch for: WebBank doesn’t permit partial withdrawals from a CD before it matures. If you withdrew from a 1-year CD early at WebBank, you’d incur an early withdrawal penalty of six months of simple interest.
Overview: Colorado Federal Savings Bank was originally chartered in 1990 and acquired by new ownership in 2008. It is headquartered in Greenwood Village, Colorado. Currently, Colorado Federal Savings Bank is branchless, with an online-only presence.
Perks: You’ll need at least $5,000 to open a 2-year CD at Colorado Federal Savings Bank. If you open this CD, you’ll earn 2.07 percent APY. Interest on this CD is compounded daily and posts to your account on the last day of every month.
What to watch for: If you make an early withdrawal, you’ll incur a penalty of six months of interest.
Overview: First Internet Bank of Indiana was the first FDIC-insured financial institution to operate entirely online, according to the bank’s website. First Internet Bank of Indiana opened on February 22, 1999 and doesn’t have any branches and is available in all 50 states.
Perks: You can open a 2-year CD if you have $1,000. If you do, you’ll earn 2.17 percent APY. First Internet Bank of Indiana has a mobile app for both iOS and Android.
What to watch for: There is a 360 days of interest penalty if you make an early withdrawal from a First Internet Bank of Indiana two-year CD. Interest is compounded monthly and credited monthly, on the last business day of the month.
Overview: Bank5 Connect is an online bank that launched in July 2013. It is a division of BankFive MHC, which is a bank based in Fall River, Massachusetts. BankFive was founded in 1855.
Perks: There is only a $500 minimum deposit required for a Connect CD. The yield on a 3-year CD is 2.20 percent APY.
What to watch for: Those who reside in Massachusetts or Rhode Island can’t bank at Bank5 Connect. BankFive has offices in those two states. There’s an early withdrawal penalty of six months of interest on a 3-year CD at Bank5 Connect.
Overview: Connexus Credit Union has more than 347,000 members in all 50 states. Connexus is federally insured by the National Credit Union Administration (NCUA) and it has branches and ATMs in four states: Minnesota, New Hampshire, Ohio and Wisconsin.
Perks: You can earn 2.50 percent APY on a 3-year CD at Connexus. There is a $5,000 minimum deposit needed to open a CD.
What to watch for: You need to be a member of Connexus to open an account. But even if you aren’t an employee or retiree of a certain company and don’t reside in a certain area, you can become a member of the Connexus Association with a one-time, $5 donation.
Overview: Colorado Federal Savings Bank was originally chartered in 1990 and acquired by new ownership in 2008. It is headquartered in Greenwood Village, Colorado. Currently, Colorado Federal Savings Bank is branchless, with an online-only presence.
Perks: Colorado Federal Savings Bank has consistently competitive yields on its CDs. Its 3-year CD is yielding 2.12 percent APY.
What to watch for: The Colorado Federal Savings Bank CDs require a minimum balance of $5,000. If you withdraw your money early from a 3-year CD at Colorado Federal Savings Bank, you’d incur a penalty of six months of interest.
Overview: Live Oak Bank serves customers across the country. It was established in 2008 and is an FDIC-insured bank with its headquarters in Wilmington, North Carolina.
Perks: Live Oak Bank CDs are offering competitive yields. With a 4-year CD, you can earn 2.2 percent APY. You can also access your account via the Live Oak Bank Mobile app.
What to watch for: You need a minimum of $2,500 to open a Live Oak CD. The maximum amount for an account is $250,000. If you withdraw from a 4-year CD at Live Oak before it matures, you’ll pay a penalty of 180 days of simple interest.
Overview: First Internet Bank of Indiana was the first FDIC-insured financial institution to operate entirely online, according to its website. It opened on February 22, 1999 and doesn’t have any branches and is available in all 50 states.
Perks: You can open a 4-year CD if you have $1,000; you’ll earn 2.24 percent APY. First Internet Bank of Indiana has a mobile app for both iOS and Android.
What to watch for: There is a 360 days of interest penalty if you make an early withdrawal from a First Internet Bank of Indiana four-year CD. Interest is compounded monthly and credited monthly, on the last business day of the month.
Overview: Home Savings Bank was first organized in 1961. It got its start by financing furniture sales contracts and then first began accepting savings deposits from the public in 1979. It became an FDIC-member bank in 1986.
Perks: You can open a 4-year CD if you have $1,000; you’ll earn 1.50% APY. Home Savings Bank of Indiana has a mobile app for both iOS and Android.
What to watch for: There is a 360 days of interest penalty if you make an early withdrawal from a Home Savings Bank four-year CD. Interest is compounded monthly and credited monthly, on the last business day of the month.
Overview: Georgia Banking Company is an FDIC-insured bank that has its headquarters in Atlanta, Georgia. It was established in 2001. It has a main office in Sandy Springs, Georgia and a location in Griffin, Georgia.
Perks: You can earn 2.05% APY on a 5-year certificate at Georgia Banking Company.
What to watch for: You must be at least 18 years or older and a U.S. citizen to open a CD at Georgia Banking Company online. There is a $500 minimum deposit required to open a CD. A 5-year CD would incur a penalty of six months of interest if you make an early withdrawal.
Overview: First National Bank of America was established in 1955. It is an FDIC-insured bank that has its headquarters in East Lansing, Michigan
Perks: A 5-year CD at First National Bank of America yields 2.4 percent APY. This APY is also available for a traditional IRA CD and a Roth IRA CD.
What to watch for: If you make a withdrawal before your CD matures, you’ll pay a penalty of 540 days of interest that you would’ve earned on the amount withdrawn if it had stayed in the CD for the full term.
Overview: Tampa Bay Federal Credit Union has six service center locations in Florida.
Perks: A Tampa Bay Federal Credit Union 5-year CD currently yields 2.00 percent APY on its three balance tiers. These tiers for certificates start at $500.
What to watch for: You need to qualify for membership at Tampa Bay Federal Credit Union based on either your location, employer/association relationship, family relationship or if you belong to the Prime Time Club. A one-time fee of $5 is required to join the Prime Time Club.
Overview: Connexus Credit Union has more than 347,000 members in all 50 states. Connexus is federally insured by the NCUA and it has branches and ATMs in four states: Minnesota, Ohio, New Hampshire and Wisconsin.
Perks: You can earn 2.6 percent APY on a 60-month Share Certificate at Connexus. Since Connexus is a credit union, the CD is called a Share Certificate. There is a $5,000 minimum deposit needed to open a Share Certificate at Connexus.
What to watch for: You need to be a member of Connexus to open an account. But even if you aren’t an employee or retiree of a certain company and don’t reside in a certain area, you can become a member of the Connexus Association with a one-time, $5 donation.
What to know about CD rates
Continue reading for more information on certificates of deposit. Bankrate regularly analyzes banks, gets insights from top financial experts, and compiles industry data to provide the information you need to make an informed financial decision.
Our team has also interviewed financial professionals to give you expert advice on choosing the best CD rates. Check out tips below from experts like Greg McBride, Stewart Welch, and Dana Twight.
What is a CD?
A CD is a Certificate of Deposit, which is a type of savings account, found at banks and credit unions, that pays a set interest rate on money deposited. In exchange, you agree to keep the full deposit in the account for a set term. Common terms include 6, 12, 18, 24, 36, 48 and 60 months.
Generally, the longer the term, the higher the interest rate. CDs with higher APY rates give you a better yield on your deposited money. Just be sure to consider factors like minimum deposit requirements and monthly fees when choosing the best CD rate for your financial goals.
The biggest risk associated with traditional CD accounts is the penalty institutions charge for withdrawing money before the CD's maturity date. Early withdrawal penalties can often eat up any interest earned and some of the principal investment.
In addition to traditional CDs, some institutions offer specialty CD rate options. These can include jumbo CDs, bump-up CDs, liquid CDs, callable CDs and zero-coupon CDs.
How does a certificate of deposit work?
A certificate of deposit (CD) is a savings account found at banks and credit unions where you can deposit money for a predetermined amount of time and earn interest on those funds. The interest is usually compounded and added to the principal.
One of the reasons you get a higher annual percentage yield (APY) is because the bank knows how long you’ll be keeping your money in its CD. And if you withdraw before that time, you may incur a penalty. CDs are popular accounts for longer-term money. Typical CD lengths are 6, 12, 18, 24, 36, 48 and 60 months.
Choose your CD length wisely. The duration of CD accounts typically determines the rate; the longer the term, the better your CD interest rate will be. Luckily, CD rates come in a wide variety of terms, from a 1-year CD that offers a 2.75 percent APY with a $500 minimum deposit to a 5-year CD rate that offers a 3.50 percent APY with a $1,000 minimum amount.
Who is a CD a good investment for?
A fixed-rate CD is a good product for those who don’t like surprises – and want to know their rate of return beforehand. Because they’re low-risk investments, CDs tend to be associated with older, more risk-averse savers preparing for retirement. But people of different ages can benefit from sticking some of their savings into a CD.
A CD could be a good place to store money you’re setting aside for a specific goal, like saving for a down payment on a house or a new car. Tying up money in a CD for 12 months or two years could be one way to stop yourself from dipping into your savings prematurely. A CD could also be a good place for an emergency fund, says Stewart Welch, founder and senior member at the Welch Group, a fee-only investment management and financial planning firm.
CDs are best for meeting short-term financial goals. Due to inflation, using a CD to build wealth over time won’t work in your favor.
“This is why I wouldn’t even recommend that a retiree puts all their money in CDs,” says Dana Twight, founder and principal of Twight Financial Education. “Some of your money has to be positioned so that you will beat inflation. And traditionally, the way to do that is a balanced approach to the stock market.”
A CD is a bad investment for a person who needs the money to be liquid or someone that needs the funds during the term of the CD. This may result in a penalty that will erase interest earnings and may even eat into principal.
Why are CDs good for small investors?
CDs are good for small investors because you don’t need a large minimum deposit to open one and they can offer competitive yields. Currently, there are CD options that have no minimum deposit requirement.
CDs are perfect for the investor who has a low-risk tolerance and wants a fixed rate of return. CDs usually have fixed rates for the term, but there are some exceptions. For instance, step-up CDs usually start with a lower APY and gradually increase on an annual basis. Some banks, meanwhile, offer variable-rate CDs.
"A certificate of deposit is a fine choice if you have a specific cash need at a future date. Invest your money with complete safety, a known return and a defined time frame for when you’ll get that money. Seek out the top yields on the maturity that suits your timetable."
Fixed-rate CDs are safe because if you keep your money in them for the full term, you know your principal is never in jeopardy. They’re also safe if they’re at a Federal Deposit Insurance Corp. (FDIC) bank or a National Credit Union Administration (NCUA) institution. FDIC deposit insurance covers accounts at FDIC banks up to at least $250,000. An account at an NCUA institution has a standard share insurance amount of $250,000 per share owner, per insured credit union, for each account ownership category.
Are online CDs safe?
If an online CD is held at either an FDIC-insured bank or at a credit union regulated by the NCUA and insured by the NCUSIF, it’s safe as long as it’s within insurance guidelines. These accounts are safe because they’re backed by the full faith and credit of the U.S. government.
So, if an online bank is insured by the FDIC or if a credit union offers CDs online that are insured by the NCUSIF, then the CD is just as safe as a brick-and-mortar bank or credit union. Just make sure you’re not exceeding the insurance limits. The standard insurance limit is $250,000 per depositor, per insured bank, for each account ownership category at an FDIC-insured bank. NCUSIF standard share insurance is $250,000 per share owner, per insured credit union, for each account ownership category.
Why an online bank may be the best choice for a CD
Online banks tend to have higher APYs than brick-and-mortar banks. Online banks typically have lower overhead costs and are able to pass the savings along to their customers in the form of higher rates. In addition, unlike your bank down the street, online banks may need a higher APY to get your attention.
Should you open a CD for your child?
Whether you should open a CD for your child depends on when the money is going to be used. If you won’t need the money for a set amount of time, a CD could be a great way to grow your child’s savings. If the goal is to earn a fixed APY, that would also be a reason to consider a CD. However, if this is money that you’re looking to gain a potentially higher rate of return, you may want to look at investment options. But these potential gains could have risk of principal, so it all depends on what the money is being used for, your time horizon for the money and whether you want a guaranteed rate of return or a riskier investment.
If it’s unclear when your child might need the money, consider a savings account or money market account.
CD rates vs. inflation
Generally, the top-yielding CDs offer APYs above the inflation rate. The inflation rate has been below the Federal Reserve’s 2 percent target for some time. Beating inflation, or at least keeping up with it, is important. If you’re not, you’re losing purchasing power. This means as time passes, your money won’t be able to buy as much as it does today.
What to consider when choosing a CD
Choosing the best CD rate can be tricky, but it is certainly not impossible. There are thousands of banks out there, each with multiple CD term options offering different APY rates with varying minimum deposits and fees. Bankrate is here to help you choose the best CD rate for your savings and spending needs.
If you’re looking for CDs with the highest yield, your best bet is to compare rates offered by online banks. Banks without hefty overhead costs can pass their savings on to customers in the form of higher yields. Many credit unions also offer competitive CD rates. Chances are the highest CD yields are several times higher than the ones your existing bank offers.
"Don’t trust your local bank to have the highest rates. You definitely need to do the research."
- Stewart Welch, Welch Group
In addition to the interest rate, consider other important factors before choosing a CD, such as whether you can deposit enough money to earn the top yield. You should also think about how soon you’ll need the money you want to leave inside of a CD. If you need the money in three or six months, for example, keeping it in a savings account is a better idea.
The best CDs don’t have a harsh early withdrawal penalty. (Typically, you stand to lose about six months’ interest.) They also allow interest to compound daily rather than monthly, allowing your savings to grow faster.
Compare CDs to get the highest APY and determine when you’ll realistically need to use the funds. An early withdrawal penalty can quickly wipe out any gains – and could potentially take a portion of your principal. For emergencies, keep an adequate amount of money in a liquid savings account and use this money first. This may protect you from incurring early withdrawal CD penalties.
Choosing the shortest term that gives you the best rate is the recommended strategy.
"In a rising rate environment, favor shorter maturities that give you the ability to earn a competitive return now but to reinvest at even better yields later."
Find the best CD rates for you by considering the annual percentage yield (APY), term, minimum deposit required and the penalty charged for early withdrawal. Our goal is to help you make the safest financial decision possible.
Some banks offer a no-penalty CD
Traditionally, CDs are known as time deposit accounts. Standard CDs are known to generally have early withdrawal penalties. This means if you withdraw from a CD before it matures, you’ll usually incur a penalty that’s equal to a certain amount of interest earned during a certain period. For instance, a bank may impose a penalty of 90 days of simple interest on a one-year CD if you withdraw from that CD earlier than a year.
Some banks offer no-penalty CDs, which allow you to withdraw without having a penalty cut into your interest earnings – or possibly your principal. A bank may require that you wait at least some time, generally around six or seven days, before you’re able to withdraw from a no-penalty CD. And if you’re able to withdraw during that time period, you may incur a penalty.
Some banks may not allow a partial withdrawal from your no-penalty CD, and you generally aren’t able to add to no-penalty CDs.
No-penalty CD rates can be higher than some savings accounts or money market accounts.
What you can and can't do with a CD
You can typically earn a higher APY with a CD than most savings accounts or money market accounts. That interest is usually compounded on a daily, monthly, quarterly or annual basis. It is usually credited to your account on a monthly, quarterly, semiannual or annual basis.
You can re-evaluate the CD after the term expires. You usually have a grace period between the CD’s maturity date and renewal date. This allows you to renew it, change the terms or withdraw and close it.
You usually can’t add money to CDs until they mature. In most cases, can withdraw from a CD at any time, but this may result in an early withdrawal penalty. So this is something to avoid, if possible.
Are you taxed on a CD?
Yes, you are taxed on the interest earned on a CD that contains non-qualified money – money that you already paid income tax on. However, if the money is in a traditional IRA CD, you will pay taxes when the money is withdrawn. This is because traditional IRAs are tax-deferred accounts. If the money is in a CD that is a Roth IRA, you’ll pay taxes upfront.
Overview of jumbo CDs
Jumbo CDs generally require balances of more than $100,000. The phrase “jumbo CDs” isn’t that common these days. But some banks still have them.
Generally, you can find the same or even higher APYs in CD products that aren’t considered jumbo CDs. But some jumbo CDs do reward customers for these large deposits with a high APY. For the most part, online banks offer the highest APYs on CDs. Many online banks simply have high APYs with minimum balances well below the $100,000 mark.
Will CD rates go up in 2019?
CD rates may rise because of competition among banks. But with the Federal Reserve pausing its federal funds rate increases, after four rate hikes in 2018 and nine since 2015, rates likely won’t rise too much this year.
But if a bank is looking to increase its deposits, a rate increase could be a way to attract customers. Bankrate has a full CD rate forecast, with long-term CDs and short-term rate predictions.
Do you get a 1099 for a CD?
Interest earned from CDs is an example of taxable interest, according to the IRS. When you earn $10 of interest or more, you should receive Copy B of Form 1099-INT or Form 1099-OID. Even if you don’t receive a 1099, all taxable and tax-exempt interest must be reported on your federal income tax return. Also, interest may be called dividends.
Are CDs tax-deductible?
If you’re contributing to a regular bank CD – with money that’s already been taxed – then your CD isn’t going to be tax-deductible. But if you’re eligible to contribute to a traditional IRA CD, you may be eligible for a full deduction up to the contribution limit or a partial deduction.
For instance, if you’re eligible to contribute $5,000 to an IRA, that would be tax-deductible.
Your modified adjusted gross income, whether you’re married and whether you are covered by a retirement plan at work are some of the factors that will determine whether you are eligible for an IRA deduction.
A Roth IRA CD, if you’re eligible to open one, isn’t tax-deductible.
What happens if you cash in a CD early?
If you cash a CD in early, you may incur an early withdrawal penalty. This penalty is going to be imposed by the bank that issued the CD.
There can be a way to deduct a CD penalty, says Rachel Ivanovich, enrolled agent at Easy Life Management in Carlsbad, California.
“It’s just an above-the-line deduction,” Ivanovich says. “It goes in the adjustments section on the 1040, that if you take the CD out early, and there is a penalty, you can deduct that.”
Are CDs tax-deferred?
If a CD is a regular CD that was opened with post-tax money, the interest earned is taxable and not tax-deferred.
If you own a CD that matures in more than one year, you need to include it in income each year as a part of the total interest due, according to the IRS. The exception to this would be if a CD is an IRA CD. A traditional IRA CD grows tax-deferred until a distribution is made.
Does cashing in a CD count as income? (in a tax situation)
If your CD is a regular bank CD that you opened using funds that have already been taxed, the return of principal or return of capital shouldn’t be taxed again, Ivanovich says.
One exception to this would be, for instance, if the funds were rolled over from a 401(k) into a traditional IRA CD and those funds have never been taxed. If you’re withdrawing from a traditional IRA CD in that situation, the money that you withdraw will count as income.
Are there 20-year CDs?
20-year CDs may exist, but you’ll have a hard time finding a bank that offers one. Even banks that offer long-term CDs tend to stop at 10-year terms. For most banks, five years is generally the longest term CD.
“There are a few who are offering longer terms,” says Adam Stockton, director of consumer pricing at Novantas. “But for the most part, you should expect most banks to be offering five-year CDs. If you're looking for something longer, it might take a lot more looking."
If you can find one, a 20-year CD might make sense in an interest rate environment such as July 1984, when CD rates were in double digits. But in 2019, a short-term CD with a term of two years or shorter makes the most sense. A short-term CD allows you to wait and see what direction rates head in the near future while also taking advantage of today’s rates.
What causes CD rates to rise?
The yields on Treasurys, competition among banks, eagerness to secure deposits and the ability to lend money for a higher rate are some factors that cause CD rates to increase. So, if Treasurys rise, it’s likely that some banks may raise rates.
“Banks take the deposits that we give them and lend them back out,” Stockton says. “So, to the extent that banks can get better returns on lending the money out for a longer duration, they can offer better rates to consumers on CDs for locking in their money for a longer duration."
How long can you leave money in a CD?
You can keep your money in a CD and let it renew over and over. CDs generally automatically renew.
“When a certificate of deposit term ends, based on the bank’s policy, it can be automatically renewed, unless the customer says otherwise,” says Rhonda Thomas-Whitley, Independent Community Bankers of America (ICBA) vice president and regulatory counsel. “These terms are outlined in the required notices sent to the customers before the CD term expires. Whether a customer can keep having it renew over and over again is up to the bank. Unclaimed CDs can be escheated to the state, subject to those state’s laws.”
To avoid your CD being escheated if it’s considered abandoned property, you should make sure you’re both occasionally keeping in touch with your bank and keeping a valid mailing address on file.
Each state is different, so check with your state for its abandoned property rules. For instance, in Connecticut, if a CD renewal notice is returned by the U.S. Postal Service after a CD already renewed, the bank should notate this on the account and flag the CD from renewing in the future. If the bank receives returned mail before your CD renews, the bank shouldn’t renew your CD. The bank should note the account is dormant, allow the three-year dormancy period to pass and then the property should be escheated to the state unless the bank is able to successfully contact the customer. In Connecticut, a contact can be in person, over the phone, via letter or email.
Do CD rates differ by state?
Generally, online banks tend to keep rates consistent across states. If a bank has a brick-and-mortar location in a certain state, it may not offer an online account in that state.
“Most of the purely online banks offer the same rates across the country,” Stockton says. “With that said, there are certainly some banks who will do promotions from time to time or have a special (offer) locally.”
It’s possible for a bank to have different rates in different markets because different markets have different competitive conditions, Stockton says.
"All of the community banks and credit unions are typically different in different markets,” Stockton says. “And so banks overall have to compete with whoever's in each of their local markets. So it may make more sense to have a higher rate in some markets where they're competing against some really aggressive community banks or credit unions that maybe aren’t in their other market.”
What is the average interest rate on a CD?
The average interest on a CD varies by term. Typically, shorter-term CDs have lower rates than longer-term CDs.
Here are the current average rates for the week of November 6, 2019, according to Bankrate's weekly survey of institutions:
CD Rate National Average
Note that those are average rates. See the table at the top of the page for rate comparisons.
The "Bankrate.com National Average," or "national survey of large lenders," is conducted weekly. The results of this survey are quoted in our weekly articles and national media outlets. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We've conducted this survey in the same manner for more than 30 years, and because it's consistently done the way it is, it gives an accurate national apples-to-apples comparison.
Are CD rates locked in?
Traditional CDs come with a fixed interest rate that's locked in for the entire term. While it's possible to withdraw money before the CD's maturity date, most institutions have stiff early withdrawal penalties for doing so. That makes it wise to keep the full deposit in the CD account until the term is completed.
However, some banks and credit unions offer specialty CDs that allow some flexibility. One such CD is a liquid CD account, which provides the option to withdraw money without incurring a penalty. The interest rate paid on liquid CDs, and similar types of CDs, is typically lower than that of a traditional CD.
What terms should I select?
CDs come in a range of terms. Typically, the longer the term, the higher the yield. But it's important to consider more than yield when choosing a CD term. Selecting a term comes down to a couple of main factors — your financial needs and the current rate environment.
Think about how soon you'll need the money back. If you know you'll need to use the money for a purchase within 12 months, for example, favor shorter terms, like a 3, 6 or 12 months. Keep in mind that traditional fixed-rate CDs often come with steep early withdrawal penalties.
Consider the rate environment as well when choosing a CD term. In a rising rate environment, investing in shorter terms can help you take advantage of current rates and reinvest in higher rates later on.
In an environment where rates are declining, consider longer terms in order to lock in a higher rate for a longer period of time. But in the current rate environment, there might not be much of a reward for putting your money in a longer-term CD.
What happens to a CD when it matures?
Banks reach out in advance of the maturity date and let customers know that their CD will soon come due. Once the CD matures, a grace period goes into effect. You’ll no longer earn any interest or benefit from the CD rate you signed up for. But during this grace period -- which may last for seven days or as many as 10 days -- account holders can decide whether they will withdraw the funds in their account or let the CD automatically renew for another term of the same length.
Think carefully about what you’ll do with the money you locked in a CD before it matures. If you have a short-term CD that you end up rolling over year after year, you’ll likely end up earning less interest than you would if you had invested in a long-term CD from the very beginning.
“This is the whole point about these short-term bond funds or CDs. They're really only appropriate for very short-term needs or short-term cash or whatever. If you start using them for longer maturity needs, you're really leaving money on the table.”
- Mari Adam, President of Adam Financial Associates Inc.
What to know about CD ownership
CDs can be owned or titled in different ways. They can be owned by an individual or held jointly. A joint account just means two or more people. It doesn’t necessarily mean just two people.
At some banks, you may be able to have your CD titled as payable on death (POD) to a specific beneficiary. This means that upon your death, the funds go to your beneficiary or beneficiaries. Some POD accounts may avoid probate. But even if the funds avoid probate, they could still be a part of your taxable estate.
A joint account or a POD account may help you get additional FDIC insurance. A joint account has a coverage limit of $250,000 per co-owner. Each co-owner’s shares of every joint account at the same insured bank are added up and insured up to $250,000, according to the FDIC. Always check with your bank to make sure your money is fully insured.
PODs fall under the Revocable Trust Account section at the FDIC. Generally, the owner of a revocable trust is insured up to $250,000 for each different beneficiary if the proper requirements are met.
Do CDs have beneficiaries?
Banks give account holders with CDs the opportunity to name a beneficiary, or a specific person who will inherit your savings in the event that you suddenly die. While naming a beneficiary for your CD may be the last thing on your mind, experts say it’s an important step to take.
If you don’t have a beneficiary designated to receive the funds in your CD, your savings will go through probate, the process for deciding what happens to the property of an individual after their death in court. If your loved ones have to go to court to determine what happens to your CD, they could wait a long time to claim your funds, depending on the state they live in.
“Even in Florida, which I think is a pretty fast state, it could easily take a year or more so your assets won't go to your beneficiary until they go through court. The judge decides it's OK. Then they look at your will and they give it to your heir, but that could take a while and a lot of people don't have wills,” Adam says.
Bottom line: It’s in your best interest to name a beneficiary to receive the money in your CD. Keep in mind that even if you name someone as your beneficiary, the funds in your CD will technically still belong to you while you’re still alive. And if you’re stuck trying to decide who to name as your beneficiary, avoid choosing a minor.
“Minors generally cannot accept property without a custodian. So if possible, try to name grownups if you like, you're a single mom of two kids,” Adam says. “You may not have a choice but just realize they'll probably get a custodian named or name someone to be the custodian.”
What to know about CD compounding
The nature of CD compounding
CDs generally compound interest on either a daily, monthly, quarterly or annual basis. The more frequent the compounding, the better for you. An APY already includes the effect of compounding. That’s one of the reasons you should always compare APYs rather than comparing interest rates.
CD compounding versus other savings accounts products
Generally, CDs, savings accounts, money market accounts and interest-checking accounts all either compound interest on a daily, monthly, quarterly or annual basis. Daily is the most common – followed by monthly.
The more frequently your interest compounds, the faster your money will grow. But the APY already includes the effect of compounding in it. So, as long as you compare APYs – and not interest rates – you’ll be able to get an apples-to-apples comparison of which account will earn you the most interest over time.
Can you keep depositing into a CD
Traditional fixed-term CDs typically don't allow additional deposits, but certain non-traditional types may. It depends on the institution and the type of CD being offered. For example, some banks may offer a variable-rate CD with the ability to make ongoing deposits, but not all variable-rate CDs allow for that perk. And while it is possible to find CD accounts that allow for additional deposits, savers may have to sacrifice some yield in order to get that benefit. CD accounts with this feature also tend to come with restrictions, like minimum or maximum amounts for each additional deposit, minimum opening deposits and constraints on when you can deposit.
Pros and cons of a CD
Longer-term CDs typically have a higher APY than money market accounts or savings accounts.
CDs are a good place to keep money that you want to save and don’t want to easily touch and spend.
Deposit insurance covers accounts at FDIC banks up to at least $250,000. And at an NCUA bank, your money is federally insured to at least $250,000.
A CD can diversify your savings plan with a guaranteed rate.
If you keep your money in a CD for the full term, your principal is safe.
Your money is in an account for potentially a long period of time.
Many CDs have early withdrawal penalties.
If rates rise substantially or an emergency happens, you will likely have to pay a penalty to withdraw your money.
You could potentially earn greater rates of return in the stock market or by investing in other securities.
CDs vs. Other Savings Accounts
CDs vs. IRAs
The interest gained on a CD will be taxed for that tax year if it’s non-qualified money. A traditional IRA is taxed-deferred, and a Roth IRA is taxed upfront. Tax-deferred means the taxes will be paid upon withdrawal. A portion of your retirement money in CDs may help diversify your portfolio. This may be a good option for money that you don’t want in a fluctuating investment product. Not all CDs can be IRAs, so check with your financial institution.
CDs vs. Traditional Savings Accounts
Savings and money market accounts are more liquid than CDs. That means the funds you store in those types of accounts are easier to access. You could withdraw the savings you’ve stashed in a CD, but be prepared to pay a penalty (unless you’ve purchased a no-penalty CD).
The gap between rates tied to CDs and savings accounts has narrowed. But CDs are more likely to pay a higher yield. While the best nationally available savings account rate is 2.35 percent APY, the most you can earn on a 5-year CD offered in all 50 states is 3.60 percent APY.
When to stick with a savings account instead of a CD
A savings account is best for either an emergency savings account or for money that you know you’ll need in less than a year. This is because savings accounts are liquid – meaning you can generally access your money at any time. A savings account is best for money that you either expect to use, or for funds that you don’t expect to use but may need quick access to if an emergency or unplanned expense occurs.
A CD is a time deposit, meaning it has a fixed term and generally a fixed APY. You’ll also likely incur a penalty if you withdraw your principal before it matures. Even if your CD earns more than a savings account, a penalty could negate the higher APY.
Generally, CDs are better for funds that have a time horizon of a year or longer because they may help you earn more interest than a liquid savings account. But if liquidity and access is more important for these funds, stick with a savings account to avoid incurring early withdrawal penalties in a CD.
CDs vs. bonds
Investors have a lot to consider when deciding between a CD and a bond. Traditional CDs from banks are insured by the Federal Deposit Insurance Corp., or the National Credit Union Administration if you’re getting a certificate from a credit union.
CDs are safe investments that typically have a fixed interest rate. In other words, you know how much you’re earning each year upfront. And you’re guaranteed to receive that amount of interest, as long as you don’t make any premature withdrawals. If you do have to pull any money out of the account before it matures, you’ll likely have to pay a penalty. A few banks offer no-penalty CDs, which allow customers to withdraw funds before the CD matures without facing any consequences or losing any interest.
While there’s a guaranteed rate of return, the downside to having a traditional CD is that there’s less flexibility. Your money is locked up for a particular term and the amount of money you’re earning is low because you have to account for inflation and the amount of interest you’ll lose paying taxes.
“They're really only appropriate for short-term needs simply because they are too low. The rates of return are too low,” says Mari Adam, president of Adam Financial Associates Inc.
Other than no-penalty and traditional bank CDs, savers also have the option of putting their money into:
Step-up CDs: Accounts that allow the annual percentage yield to increase automatically at set intervals.
Bump-up CDs: Fixed-deposit accounts that permit an interest rate increase during the term, upon request.
Brokered CDs: Investment accounts that are opened with the help of a broker rather than coming directly from a bank.
Add-on CDs: Certificates of deposit that allow account holders to make multiple deposits before the maturity date.
Callable CDs: Fixed-rate investment vehicles that can be “called” or redeemed by the bank after a certain period of time, limiting the amount of interest you can potentially earn.
Getting a CD generally only makes sense if you’re looking to store money for the short term and it’s being used for a particular goal, like a mortgage down payment or a kid’s college fund.
“When it's probably not good is when you don't know the timing. Like if you want to buy a house but you don't know when you're going to find one and you might see one in four weeks, then it's probably not good to go buy a one-year CD,” Adam says.
If you’re interested in having more flexibility and you want the chance to earn a higher yield, you may be more interested in investing in a bond. By buying bonds, you can also potentially avoid paying taxes on the interest you earn.
There are many different types of bonds and some are riskier than others. But bonds across the board aren’t protected by FDIC or NCUA insurance like CDs are. You can sell them before they mature. And the value of your bonds will vary depending on what’s happening with interest rates. If interest rates are rising, the price of your bonds will fall and vice versa.
“It's driven by market conditions and market prices. So you could buy a bond or a bond fund and a year from now it may be worth more than you paid. It could also be worth less than you paid,” Adam says. “So you don't have that certainty.”
Some examples of bonds you could invest in include:
Bond funds: Pooled investments made up of different types of bonds and other debt instruments.
Municipal bonds: Issued by governmental entities like states and counties to pay for different projects and infrastructure.
Corporate bonds: Bonds issues by companies and corporations that typically pay higher yields.
Junk bonds: Riskier bonds with a greater likelihood of default that pay higher yields.
Treasury bonds: Securities issued and backed by the federal government.
Zero-coupon bonds: Securities that don’t pay interest and are normally issued at a discounted rate.
Foreign bonds: Purchased from foreign entities.
Mortgage-backed securities: Bonds backed by real estate loans that are typically pooled.
Before you choose a bond or bond fund, it’s best to do your research and consider the risk, maturity and quality of the bond.
How to build a CD ladder
Laddering is a method to space out maturity dates on your CDs. It’s a way to both spread out when the money is available and protect yourself from being stuck in a long-term product if rates skyrocket. For instance, a CD laddering plan of three CDs might have a 1-year CD, a 2-year CD and a 3-year CD.
"Looking for a regular stream of interest income? Consider a CD ladder where your money is diversified over a range of maturity dates, structured so you get to reinvest at consistent intervals."
Generally, the longer your CD term, the higher your rate of return. One way to grow your savings and earn as much interest as possible is to build a CD ladder. You could buy several CDs with different term lengths at one time, giving you the chance to invest in a long-term CD with a higher yield and short-term CDs that will mature within a short period of time.
CD laddering can also shield you from interest rate changes. If rates are rising, you’ll be able to take advantage of higher yields when your short-term CDs mature. And if interest rates are falling, you’ll be happy that you locked up your savings when your bank was paying a higher rate. Consider keeping your CD ladder short during a rising interest rate environment and long when rates are moving in the opposite direction.
"When rates are declining, you want to go long on your ladder because then you want to tie up that high rate for the longest period of time."
- Dana Twight, Twight Financial Education
Bankrate's Top CD Rates in November 2019
The experts at Bankrate have compiled our best available CD rates into an easy-to-read table so you can compare rates and minimum deposits across banks.