CD Rates: Learn How to Save Big

In this comprehensive guide, you’ll learn all about certificates of deposit (CDs) and CD rates. Although some investments are risky, certificates of deposit are a relatively simple, safe, and reliable way to help grow your assets. Let’s cover all the essential information you need to know, namely What are CDs? And Whom can they help?

Once you understand the basics, we’ll examine some of the common concerns, picking the right lender and term-length, and offer our top CDs currently on the market in 2019.

CDs help people from all socio-economic backgrounds with as little as $1 minimum deposits to $100,000+. There’s no need to feel left out, no matter what your savings account looks like. Often, the best thing you can do is just get started. There’s no need to wait for some massive windfall of cash.

So, let’s do just that: get started! We’ll begin with some of the simple stuff. Precisely what is a certificate of deposit? Whom can CDs help? And is a certificate of deposit right for you?

What are CDs?

Certificates of deposit are a chance for you to earn more interest on your money. That’s because the annual percentage yield (APY) is generally higher than the APY you earn on checking accounts or savings accounts.

The same financial institutions offering those traditional accounts also offer CD accounts, so switching over is pretty straightforward. Even if you don’t have an account with a traditional bank, online savings accounts tend to come with their CD deposit options, as do credit unions, e.g., Ally Bank offers both online services.

Why You Might Benefit From CDs

Is a certificate of deposit right for you and your money? Here are some of the reasons you might benefit from making the switch to a CD account.

#1: Investing makes you nervous.

If you’re keeping extra money in your savings account, you’re losing out. The APY on savings accounts is typically well below the rate of inflation, so as time passes, your savings account actually loses value. That’s right. Just saving money can sometimes mean losing money if you’re not smart about where you put it.

Putting that money in a high-yield savings account is one answer. However, these accounts often come with high minimum deposits or minimum balances and have stringent usage requirements to earn that high APY. Requirements include the number of deposits and debit card transactions you make, as well as restrictions on the types of statements you receive and how often you need to sign in to the online portal. So these accounts require quite a lot of monitoring.

If that all sounds like too much work, another option is a high-yield CD. These CDs often earn better rates than a high-yield savings account with virtually zero input from you. You can just let them sit and earn.

CD rates are much higher than the rates of the average checking accounts or savings accounts, and your money can keep a much closer pace with inflation without the inherent risks of investing. You might be thinking, “What makes this possible? Why would they just hand you “free” money?” 

CDs are essentially a promise to the bank that you won’t use your money for a certain time. They’re like a little loan to your credit union or bank so that they can make loans to others. They pay you a part of what they earn on that loan in the form of higher interest rates on CDs. Because you can take your money back from standard accounts anytime, banks have to keep enough cash on hand to give it back to you. This restraint limits what they can loan out to others, hence the difference in rates.

But be careful. Because of this function, certificates of deposit also come with an early withdrawal penalty, which is assessed in fees at the time of withdrawal. Withdrawal fees can be a pain, but CD accounts come in all shapes and sizes, so you can choose different term-lengths to minimize that risk. If you’re worried about your savings being locked up for too long, you can always get a CD account that has a shorter duration to avoid an early withdrawal.

Also, keep in mind that you don’t need to put all of your money into a CD.  Keeping a small, liquid fund in your savings account is advisable for emergencies. CDs are the best option for money you are reasonably sure you won’t need to touch.

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#2: You know you will need the money…but not yet.

Short-term CD accounts are also available, which means that there are opportunities for that money you’re saving for a down payment. Say your money is waiting for when you finally make that big home purchase: why let it sit idle when you can be earning interest? Consider getting a short-term certificate of deposit because unlike investing, there isn’t a risk that the value of the account will take a sudden dip right before you need the money – and you can earn much better interest on your money.

Although financial institutions reserve the highest APY for long-term certificates of deposit, there are alluring CD rates for shorter terms. For example, Sallie Mae offers a CD rate of more than 2% with a minimum required deposit of just $2,500. It is worth considering that the FDIC reported the average savings account APY at 0.08% as of September 2018. You could stand to double your earned interest by not touching your deposit, especially since some banks have no minimums for CDs. Since that’s what you try to do with your savings most of the time, that sounds like a pretty sweet deal.

#3: You want to earn money…but don’t like thinking about it.

Sometimes, you just don’t want to have to think about your money. Sure, you can still invest without any active management if you hire someone to manage your portfolio, but that comes along with special fees and extra paperwork. What if you don’t have the time or energy for that right now?

Certificates of deposit are a great way just to set it up and let it grow. Once a CD has been purchased, your money grows without input. You make the deposit and let your money multiply – CD accounts are that simple. There’s no need to concern yourself with fees, credit, or active management. Plus, the minimum deposits are manageable. If you’re fortunate to have a more significant amount to invest, then accounts with special, higher rates for jumbo CDs (certificates of deposit for deposits greater than 100,000 dollars) are great to include in your financial portfolio.

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The Bottom Line

People can sometimes feel overwhelmed by all the different financial products out there. It can be tempting just to put all your money in a savings account and stop thinking about it. Between credit cards, debit cards, checking accounts, etc., it can feel like there’s just too much to monitor.  

That may be true, but why not make your money work for you with minimal effort of your part? If you’re still nervous about investing, certificates of deposit are a great way to invest casually. And because most banks offer them alongside their other services, there’s no need to go out shopping and opening new accounts. You can simply make the switch right at your trusted financial institution, usually in just a couple of easy steps.

Consequently, if you want to make sure you’re not losing money to inflation, open a CD alongside your savings account online. It’s often as easy as transferring your opening deposit directly from one account to another in the same portal.

FAQs on CDs & CD Rates

You still have questions. That’s okay. Financial products can feel overwhelming, confusing, and scary. They often come with strange terminology, which can make the answers seem more complex than the questions. Let’s avoid that anxiety by addressing some of the most common questions and concerns about CDs.

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What if something happens and I need my money?

It’s still your money. If you need to withdraw your savings early from a CD, your bank or credit union will let you. But don’t expect to break your word to come for free.

Although there are some institutions that offer no-penalty CDs, definitely be prepared to pay individual early withdrawal penalties/fees for most certificates of deposit. Early withdrawal fees can vary by term-length (how long your CD is for), but in general, the size of the penalty is some proportion of the CD’s total interest. Penalties vary in size and severity, but they’re usually all no joke. Only withdraw your deposit if you need to.

You should also be sure to read the fine print before you sign to know how much you’ll be penalized for early withdrawals. Most banks and credit unions offer information about penalties right on their website. Any of our recommendations below will come with links to the kind of early withdrawal fees you can expect.

Because we are not all rich like Oprah, so you never know!

Will the CD rates ever change?      

Yes, in the short term, but usually not in the long-term.

Even though variable-rate CDs exist, the more popular option is the traditional fixed-rate CD. You’re most likely to see rate changes after the CD term has ended if you’ve elected to roll the account over to a new certificate.  

For a fixed-rate CD, even if the federal reserve decreases interest rates, you won’t see a shift in your APY. But for a variable-rate CD, rates change along with prevailing market conditions.

As a rule, the rate you see on the page is generally the rate that you’ll have for the duration of your CD. You can maximize profits by trying to predict where interest rates might go and adjusting your term-lengths accordingly. Just note that this can be challenging and risky. If you’re not interested in playing the market, then a stable, fixed-rate CD is the safe, easy option for your money.

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What happens if interest rates change? What about when the CD matures?

A few things can happen once your CD matures – it all depends on you and your preferences. Your bank or credit union should contact you with options as your maturity date approaches.

Generally, you can:

• continue to have your money sit, where it will be automatically rolled into a new CD of the same term-length
• roll your deposit into a CD with a different length
• withdraw it to your checking or savings accounts

If your CD rolls over, make sure you know what your new interest rate will be. It might not be the same once your initial term is up since market conditions change. RateWatch tracks the average APY for certificates of deposit nationwide, so if you’re interested in seeing where the market is heading before rolling your CD over, they are worth checking.

What happens if the bank goes out of business?

Most institutions are insured by either the Federal Deposit Insurance Corporation (FDIC for banks) or the National Credit Union Administration (NCUA for credit unions). Most accounts (especially those accounts that are not jumbo deposits) are more than covered by these policies. So, if something happens to the bank, you will not lose your money.

For larger accounts, like retirement accounts, consider splitting your savings between institutions. Talk to a financial advisor if you have concerns about the risk of leaving your money in one bank or credit union.

Ultimately, your money is not in more risk with a CD account than a checking or savings account.

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You’re sold, but which CDs & CD rates to pick?

There are a few essential questions to consider when picking a CD: How long are you willing to tie up your money? Are you interested in a CD with your bank or your credit union? Are you ready to potentially have a credit check performed to open the new account? Let’s tackle these one at a time.

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Picking the Right Term Length

Picking the right term-length is critical because your money will be “locked-in” under penalty of fees. If you don’t choose carefully, you could end up losing money if you need to withdraw early. In general, however, the longer your term-length, the higher your APY for the entire duration of your CD. So, the first three months on a 6-month CD will earn you less than the first three months on a 12-month CD. 

Let’s explore this further:

3-Month CDs

National Rate (<$100,000 deposit, 2018): 0.17%

3-month CDs are generally among the shortest, albeit widely-available, option. These accounts typically have the lowest APY, since they involve “lending” your money to the bank for the shortest time. According to the FDIC, in 2018, the average national rate for these CDs hovers at 0.15-0.2% for deposits under $100,000, but it can close in on 1% at some institutions.

6-Month CDs

National Rate (<$100,000 deposit, 2018): 0.26%

6-month CDs are the most common short term-length CDs. The CD rates on these accounts averaged closer to 0.3% in 2018. Again, like the 3-month CDs, the APY can vary widely from institution to institution.

12-Month & 24-Month CDs

National Rate (<$100,000 deposit, 2018): 0.45%-0.65%

As the term-length creeps up, so do the interest rates. These two term-length CDs commanded average APYs of 0.45 and 0.65% in 2018, respectively. The CD market tends to vary, however, so be sure to hunt around for the best rates. CDs this long can sometimes command as much as 2+% APY.

5-Year CDs

National Rate (<$100,000 deposit, 2018): 1.11%

The CD term-length generally caps out at five years, but some institutions offer CDs for longer (up to 7 years). These certificates of deposit have the best APY offerings since they require the lengthiest promises. CDs of this length are best for those “setting money aside” for nest eggs, college funds, or other long-term investments where you can’t risk serious loss but want to ensure your savings aren’t losing value.

Whatever term-length you choose, you’ll be earning significantly more than you would if you allowed your savings to continue sitting in low-rate checking and savings accounts. Therefore, even short term-lengths are worth considering.

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Picking the Right Lender

So, you’ve selected your term-length. Now it’s time to pick your lender. Different lenders offer different products, APYs, conditions, early withdrawal fees, and more. You’ll find more information about this below, but for now, let’s think about your lender more generally. Are you interested in a CD from a bank or a credit union?

First know that some lenders, whether they’re banks or credit unions, require credit checks. If you’re conscious of your credit score and the way hard inquiries may impact it, think carefully about the lender you’re applying to.

If you don’t mind the credit check, let’s think about what type of lender you want. To understand the differences between different lenders, you’ll first need to know what they’re talking about on all that promotional material.

The terminology surrounding lenders can be confusing. Certificates of deposit are generally given by banks, while those offered by credit unions are often called “share certificates.” You can see either on credit union websites though. Credit unions typically offer higher rates on their share certificates/CDs, which are sometimes called “dividends” rather than interest.

There is a catch to that higher APY however – you need to be located near a local branch or be employed at a particular place. Unlike banks, who rarely have limits on membership, you may be ineligible for some of the highest rates offered by credit unions and those credit unions offering the best rates might reject your CD application.

Because share certificates are typically harder to get than CDs, a bank might your best option. But if your employer has a credit union or your area is home to a branch, it’s worth investigating.

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Our CD Recommendations

Our recommendations come in three categories: credit unions (which you may or not qualify for), online banks, and traditional banks. Each has its own pros and cons – but all of them are great options for the everyday consumer and investor, especially when compared to the current rates for checking and savings accounts.

Below, you’ll find a handful of the best options for CDs in each category, their current (August 2019) APY for each available term-length, and possible early withdrawal fees.

Keep in mind that these aren’t your only options. But based on our research, they have some of the highest APY, have low or fair early withdrawal fees, and are fairly accessible to those new to the CD market.

Credit Unions

As noted, earlier, credit unions often offer the best APY for CDs, but their membership is sometimes restricted to specific groups. National credit union CDs tend to cater to service-members or residents of a particular state. Most cities and states have their own credit union offerings, so visit the local branch and shop for the best rates.

The first list highlights those CDs that are excellent for service-members and those involved with a charitable organization.

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Alliant Credit Union

If you’re willing to participate in Foster Care to Success, Alliant’s parent charity, then you’re eligible for these high-rate CDs through Alliant Credit Union. With low minimum deposits and a high APY, this credit union is an excellent option for people who may not have diverse or satisfying local options.

Term-Length	$1,000+ Minimum
12 Month	2.40%
24 Month	2.50%
5 Year	2.65%

• Minimum Deposit: $1,000
• Early Withdrawal Penalty: Variable.

Navy Federal Credit Union

Those who are active-duty military served in the past, or have connected family members may qualify for the excellent rates offered by Navy Federal Credit Union. The 5-year CD through Navy Federal Credit Union (NFCU) has a particularly high rate, topping out at 3.5%. That’s $350 a year in interest for a $10,000 deposit, compared to the roughly $5-$8 you’d get in a regular savings account.

Term-Length	$1,000 Minimum	$10,000 Minimum	$100,000 Minimum
3 Month	1.10%	1.10%	1.25%
6 Month	1.90%	1.90%	2.05%
12 Month	2.25%	2.25%	2.40%
24 Month	2.40%	2.40%	2.55%
5 Year	3.50%	3.50%	3.50%

• Minimum Deposit: $1,000
• Early Withdrawal Penalty: Variable.

Online Banks

Online banks are known for offering unusually high rates. But for folks who prefer the feel of a traditional bank, they may be disappointed by not having a local branch to contact or visit. It’s particularly important to become acquainted with the online interface for these products since any troubleshooting will need to happen through the website or by phone.

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Ally Bank

Ally Bank offers a few unique options for CDs.

A special “no penalty” CD allows the depositor to keep their interest-earned, even with early withdrawal. Unfortunately, these are only offered as 11-Month CDs, so if you were looking for a short or long-term offering, you need to look elsewhere.

Ally does also offer a high-yield CD option with even better rates, but withdrawal penalties are still intact. There are many more term-length options for high-yield CDs than the “no penalty” option, thankfully.

No Penalty CD

Term-Length	< $5,000	$5,000 Minimum	$25,000 Minimum
3 Month	1.80%	2.05%	2.20%

• Minimum Deposit: No minimum deposit.

High-Yield CD

Term-Length	Deposit
3 Month	0.75%
6 Month	1.00%
12 Month	2.55%
5 Year	2.65%

• Minimum Deposit: No minimum deposit.
• Early Withdrawal Penalty: Variable.

Barclays

Barclays offers online-only CDs (despite being a traditional bank in the UK, they don’t have branches in the US) with no minimum deposit. With competitive rates and exciting options for CD-laddering (fancy term covered below), they’re a good option if you’re interested in going the online route.

Term-Length	Deposit
3 Month	0.35%
6 Month	0.65%
12 Month	2.45%
24 Month	2.50%
5 Year	2.75%

• Minimum Deposit: No minimum deposit.
• Early Withdrawal Penalty: Variable.

Traditional Banks

Marcus by Goldman Sachs

Marcus by Goldman Sachs offer rates on CDs that are competitive with online options. With a minimum balance of $500, these are affordable options for people who prefer traditional banking.

Term-Length	Deposit
6 Month	0.60%
12 Month	2.40%
24 Month	2.45%
5 Year	2.60%

• Minimum Deposit: $500
• Early Withdrawal Penalty: Variable.

CD Ladders: That Fancy Term Again

There’s one last thing you should know about certificates of deposit: if you’re feeling ambitious, you can build what’s called a “CD ladder.”

CD ladders can get you higher rates (better APY), but unlike CDs with long term-lengths, they also give you opportunities between maturities to get access to your cash in the event that you need it. This is a creative way to obtain the APY of long-term CDs without being locked out of accessing all your money for five years or more.

CD ladders are more complicated than traditional CDs, so we recommend talking to your financial institution if you’re interested.

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The Dotted Line…

Managing your money doesn’t need to be burdensome. By taking a few proactive steps, you can make saving for your future a heck of a lot easier and earn some pretty impressive returns in the process.

The longer your money can stay in a CD, the more you’ll earn, but even short-term CDs are worth your time and money. No matter what term-length is right for you and your family, there are few investments as safe as the certificate of deposit.

When it comes to finding the right lender for you, credit unions, online banks, and traditional banks are all eager to offer you certificates of deposit (or the same product by a different name). Credit unions provide the highest rates but can have fairly particular requirements. Check out local credit unions in your area for more information about their rates.

Online banks offer excellent rates but don’t have local branches, so you’ll need to be comfortable doing all your banking online. Finally, traditional banks offer a lower APY than their competitors but provide a full suite of services without being as particular about their clientele as credit unions.

No matter your financial portfolio – there’s a CD out there for you.

If you have any questions or comments, or just want to share your experiences with CDs, please post them below.

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