Top 5 Best CD Rates: April 2017
CD accounts are a low-risk way to save money and make it grow a little. We have compiled a list of the best CD rates currently on the market.
So you have some money to save. And you want the highest interest possible.
Consider a CD (Certificate of Deposit) account. CDs are virtually risk-free and have a guaranteed rate of return. And there are no fees to open or maintain an account.
Online banks give you much better rates on CDs than traditional banks. The average rate for traditional banks is just 0.05% APY for 1 year. But you can get a rate well over 1% with online banks, which is (sadly) high in this day and age.
It's a good investment vehicle to consider if you don't need the money anytime soon. Here is our list of the top CD rates.
What to Look for in an Online CD Account
Before we get into the recommendations, there are some factors to consider when choosing a CD:
- Security. CDs are virtually risk free because they are insured deposits. And the banks on this list are all FDIC insured, which means that if the bank defaults, the government will pay you back everything you had in the account (up to $250,000).
- Minimum deposit. CDs often have higher minimum deposits. And you cannot make additional deposits once you have opened an account. So make sure you already have the money set aside and you're able to meet the deposit requirement.
- Yield rate. Of course, you want the highest interest rate you can get. We have picked CDs with the highest rates currently offered on the market.
Best Online CD Accounts
CDs are all about comparing the rates and terms. And maybe you have some special requirements, like more flexibility. We have pulled together a list of the best CDs that fit each need while maintaining a high yield rate. Here are the top online CD accounts.
Note: Information including interest rates, benefits and fees were obtained on March 22, 2017 from published websites and are believed to be accurate, but not guaranteed.
Everbank: Best CD Overall with Highest APY
1.42% for 1 year; $5,000 minimum deposit
Everbank consistently offers the best rates for every term length. Everbank has terms starting at 3 months (0.80%) to 5 years (2.30%). Their promise is that the yield of your account will stay in the top 5% of similar accounts offered in the U.S. banking market.
The main downside is that the minimum is $5,000, which is higher than some other accounts. If this amount is too high for you, we have other options with lower minimums.
Capital One 360: Best No Minimum CD
1.30% for 1 year; no minimum deposit
Capital One has very competitive rates, and the best part is that there is NO minimum required to open or maintain the account. You can open a CD and start earning interest no matter how little you have. Capital One offers terms from 6 months (0.40%) to 5 years (2.30%). Their 18-month and 2-year CDs are the same high rate as Everbank's, without the high minimum deposit.
Banesco USA: Highest 1-Year CD
1.45% for 1 year; $1,500 minimum deposit
If you're just looking for a 1-year CD, Banesco offers the highest rate you'll find at 1.45%. And it has a relatively low $1,500 minimum deposit. It only offers terms of 6 months (0.45%), 1 year (1.45%), 1.5 years (1.45%), and 2 years (1.60%). You may not have heard of Banesco before, but it has strong roots in the South Floridian banking community and is FDIC insured.
First Internet Bank: Best Short-Term CD with Low Deposit
1.33% for 1 year; $1,000 minimum deposit
If you have even less to start with, the First Internet Bank offers the highest rate for just a $1,000 minimum. It also has good rates for 3 months (0.85%) and 6 months (1.06%). These are the best rates for short-term CDs that we can find.
Ally Bank: Best CD with Flexibility
1.30% for 2 years; no minimum deposit
Ally Bank doesn't offer the highest rates for their Standard CD, but it does have some flexible CD options. If you don't want to be locked in, then these are worth looking into. And there is no minimum deposit requirement.
Their Raise Your Rate CD starts at 1.30% APY for a 2-year commitment (or 1.40% for 4 years). You have the option to increase your interest rate once over the 2-year term (or twice over the 4-year term). This is great if the rate happens to increase during your term.
Ally Bank also offers a No Penalty CD, where you can withdraw the funds anytime you want without a penalty. The rate isn't the highest (at just 0.87%), but if you're a commitment-phobe, you may appreciate the flexibility. Though in this case, you may just want a normal savings account with a higher rate.
Other CDs to Consider
Here are a few more to consider if you need more options:
- CIT Bank (flexibility but high minimum): CIT Bank offers a RampUp CD, where you can adjust your interest rate once and make one additional deposit during your term. The APY is 1.27% for a 1-year term. However, the minimum deposit is high at $25,000.
It also has a traditional CD with competitive rates for just a $1,000 minimum deposit. It's 0.72% APY for 6 months, 1.32% for 1 year, and up to 1.70% for 6 years.
- Barclays (1.20% for 1 year, no minimum): Barclays doesn't offer the highest rates out there, but they have no minimum deposit. And their 1.20% APY is higher than Ally Bank's rate of 1.05% for a 1-year CD. This is another decent option if you have a very low amount.
- Synchrony Bank (1.60% for 2 years; $2,000 minimum): The rate for 1 year (1.35% APY) isn't the best, but Synchrony has just about the highest rate there is for a 2-year CD. Everbank offers the same 1.60% APY rate for 2 years, but the minimum deposit for Synchrony is only $2,000.
What Is a CD and Why Get One?
CD stands for Certificate of Deposit. You literally get a certificate stating how much you have deposited and the maturity date. Unlike a normal savings account (where you can continuously deposit and withdraw funds), you must agree to deposit a fixed amount of money for a fixed amount of time. You get a fixed interest rate that will be honored for the entire duration of your term.
Opening a CD is a commitment. CDs have fixed terms. It can be as little as just 3 months to as long as 10 years. Whatever term you choose, you must keep your funds there until maturity. If you want to take your money out sooner, you'll face steep penalties (usually a few months' interest).
But to reward you for the commitment, CDs give higher interest rates. The longer the term, the higher the interest rate. This makes a CD a good choice to save your money and let it grow more interest than it would in a normal savings account.
CDs are best for short-term savings goals. They remove the temptation of easily available funds. For example, if you know that in 1 year, you are taking your kid to Europe as a graduation gift, you can put that money aside in a CD and not accidentally spend it before then.
Best CD Strategy: Build a CD Ladder
If you have more than just a few hundred to invest, putting it all into one CD is not the smartest strategy. You'll have all your cash tied up into a single account with a fixed interest rate, and you cannot access it for a certain period of time.
Instead, use a strategy known as CD laddering. In a nutshell, you split up your investments into different CDs with different rates and terms. This ensures that you can always get the best current rate available and regular access to your money. You can also add more money regularly too.
It's best explained in an example. Here's what your ladder strategy may look like:
- $1,000 in a 1-year CD at 1.45%
- $1,000 in a 2-year CD at 1.60%
- $1,000 in a 3-year CD at 1.75%
- $1,000 in a 4-year CD at 1.90%
- $1,000 in a 5-year CD at 2.30%
So after the first year, you can withdraw the money plus interest in your 1-year CD. You can then reinvest all that into a 5-year CD. Another year later, your 2-year CD will have matured, and you can re-invest that into another 5-year CD. Every year, you do the same and thus keep the ladder going.
This means that every year, you can withdraw money if you need it. And hopefully interest rates have increased too, so you can always get the best current rate.
Is an Online CD Account Right for You?
Before you stash your money into one of the above CD accounts, here are some things to consider:
- Do you need the money in the near future? A CD account has specific terms where you cannot withdraw the money before a certain period of time. So if you have chosen a 2-year CD, make sure that you don't need the money before 2 years. There are penalties for withdrawing early.
Tip: Make sure you have already set up an emergency funds savings account before you tie up funds into a CD. Ideally, your emergency fund should contain enough for 3-6 months of living expenses in case of a job loss.
- How long do you want to hold it for? Generally, CD's are only worthwhile if you are planning to hold it for one year or more (the longer your term, the higher the interest). If you only want to do a 3 months or 6 months CD, then you may find that a high-yield savings account offers better rates.
- How much money do you have right now? Remember, you cannot make additional deposits once the account is opened. So you'll have to make sure you have all the money you want to save for the particular goal.
There Are Other Options Too
If you're not sure if a CD account is for you, some other options include:
- An online savings account will allow you to deposit and withdraw funds. A savings account is good for everyone to have to save for short-term goals and emergencies. Generally, if you only need to save the money for a very short time (less than one year), you're better off with a savings account that offers a higher rate.
Check out our list of the top 5 high-yield online savings accounts.By federal regulation, you're limited to 6 withdrawals a month without penalty, but it's still a lot more flexible than a CD.
- A money market account acts like a savings account, but gives you freer access to your money. You'll get a debit card, ATM access, and checkwriting abilities. But the interest rate may be lower.
- A higher yield checking account if you need quick and frequent access to your money. It'll give you the flexibility to access your money anytime you need with no restrictions. Most brick-and-mortar checking accounts don't give you any interest, so this is another area where it pays to bank online (literally). Check out our list of the top high-yield online checking accounts.
- Roth IRA account if you don't need the money in the near future and are ready to save for retirement. You can get much higher gains by investing your money long-term. Roth IRAs also have great tax benefits because all interest earned is tax-free. Check out our list of the top Roth IRA providers.
In general, it's always best to have a range of banking products. A CD is good for saving for a specific goal that you want to reach in a specific time. But you cannot add to the funds, so it's good to also have a savings account where you can continuously deposit more money.
- What is an APY?
Let's do the complicated answer first: APY stands for Annual Percentage Yield, which is the return you get over a 1-year period based on the interest rate and compounded interest (which means that your interest earns interest), and also based on the assumption that the funds will remain in the account for 1 year.
The simple answer is that, basically, 1.00% APY means 1% interest.
- How are these online CD accounts able to offer such a high interest rate?
Online banks don't have physical locations, which means that they have much lower operating costs than brick-and-mortar banks. This means they can save on overhead and pass those savings onto customers by offering better rates.
- Can I make withdrawals from my CD?
Yes, you may withdraw, but there will be a penalty for withdrawing early (before the term is up). Usually, the penalty is a few months of interest, depending on your term. If you think there is a good possibility you may need the money, either get a shorter term CD or just open a regular savings account.
- Can I deposit additional funds once I've opened a CD account?
No. CDs are opened with a fixed amount for a fixed period of time. You usually cannot make more deposits into your account. There are very few CDs with options to make an additional deposit. CIT Bank's RampUp CD lets you make one additional deposit, but it requires a very high minimum.
- Can the interest rate change during the CD term?
Generally, no. CDs are opened with a previously determined fixed interest rate. All banks clearly disclose the interest rate on their website. You are stuck with the interest rate for the entire term of your CD. Then you can choose to roll it over with a new rate.
There are some kinds of CDs, called "bump-up CDs," that allow you to switch to a higher rate if the bank is offering one. But the downside of this is that they generally start at a lower rate. And, of course, it's not guaranteed that the rate will increase during your term. Ally Bank has a Raise Your Rate CD where you can increase the rate once over 2 years, with no minimum deposit.
- What happens after the term is up?
When you have completed the term, you can withdraw your money and all interest. Or you can choose to roll it over into another term. Most banks will give you alerts, so pay attention. In most cases, if you don't withdraw the funds during a certain period, it'll automatically renew for the same term.
- Is a CD or Savings Account better for me?
This really depends. If you don't need the money anytime soon, then a CD will generally offer a better rate. And it'll also ensure that you won't accidentally spend that money. If you're not sure when you'll need the money, a savings account gives you more flexibility to withdraw.
Of course, the more you have to deposit, the more interest you'll earn. So if you only have a very low amount, then you may be better off with a high-yield savings account where you can keep on depositing money.
A CD is the safest way to store your money for your future goals. The rates offered are just about the highest you can get nowadays. It's a good account to include as part of your financial planning strategy. It's a very low-risk way to make your money grow a little. Just make sure that you absolutely will not need that money for the term you select. We have compiled the list of best CD rates, but feel free to shop around, compare, and see what you're comfortable with.