The Dow Jones has registered its worst quarterly performance at the end of the first quarter of 2020, much worse than what we witnessed in 2008 (the Great Recession)!
With a 23.2% fall in Dow Jones throughout the first three months of the year, it was the index’s poorest quarterly performance since 1987.
Do you invest in stocks? If yes, this could be a challenging time for you, both emotionally as well as financially. The market volatility led by the coronavirus outbreak has left investors poorer, frustrated, and fearful for their future.
It is during these times that investors realize the importance of stable, consistent returns offered by trusted financial instruments such as the certificate of deposit (CD). A certificate of deposit has always been considered as one of the safest investments for retail investors.
For those who do not use CDs, let me quickly explain the concept.
A certificate of deposit is a type of savings account that comes with a fixed rate of interest and investment term. The user has to maintain the deposit for the agreed-upon term (starting with seven days to up to 10 years or longer) to receive the interest payments.
With that being said, there are two critical factors when it comes to choosing a CD:
- Is the CD FDIC insured?
- What are the CD rates?
We have put together a list of 20 financial institutions that offer certificates of deposits with attractive CD rates and additional features.
You’ll learn how to choose the best CD rates and the benefits of investing in CDs.
Let’s get started.
What Are the Best CD Rates?
When choosing a certificate of deposit, interest rates are important.
Instead of going with your existing financial provider, choosing a CD based on its features, such as CD rates, FDIC insurance, and ability to withdraw it without paying any penalty, will help you earn hundreds of dollars in interest income.
Here is our list of some of the best CD rates available on the market today.
1. Discover.
Best CD for Users Seeking Online Services.
Discover has gained a reputation for its credit cards, but very few people are aware of the banking services provided by this financial institution.
Discover differentiates itself with its complete online financing services, making it an excellent choice for tech-savvy consumers. Discover offers competitive CD rates when compared with most of the financial institutions. If you’re looking to save taxes while earning interest on your deposits, Discover offers IRA CDs.
You don’t have to pay any fee for the opening and maintenance of your CD account. However, Discover charges a penalty for early withdrawal. After the initial grace period (7 days), early withdrawal penalties are applicable. You may end up paying up to 3 months of interest in penalties for an early withdrawal of your CD (1-year term).
Important features of Discover CDs
- APY of 1.75% for a 1-year term
- Minimum deposit requirement: $2,500
- FDIC insured
Key differentiator
- Complete online services
Limitations
- High minimum deposit
- Early-withdrawal penalty charges
- Outgoing wire transfers are chargeable.
2. CIT Bank.
Best for a wide variety of CD accounts.
CIT Bank is another name that is defying conventional financial institutions through a myriad of online banking services. One of the primary attractions of CIT Bank is the absence of any maintenance fees for its accounts, courtesy of its online banking model.
When it comes to CDs, CIT Bank offers five different types of CDs to its account holders. Its CD products include a term CD, no-penalty CD, RampUp plus CD, and Jumbo CD.
- Term CD: It is a standard CD product with an investment term of up to 6 years.
- No-penalty CD: No-penalty CD offers flexibility to add or withdraw funds from the account without paying any penalties. Any time you add or withdraw funds, your interest rate will be adjusted in accordance with the current rates. These CDs come with a maximum term of 11 months.
- RampUp Plus CD: A RampUp Plus CD provides benefits of any movements in interest rates to the investor. If the interest rate of a CD increases during the term of your CD, you can ask CIT Bank to raise your interest rate once within the term of the CD. You can also make an additional one-time deposit to your CD account. The only catch is the high minimum deposit amount, $25,000.
- RampUp CD: It is similar to the RampUp Plus CD, except you cannot make additional deposits. The minimum deposit for a 3-year CD is $25,000 and $50,000 for a 4-year term CD.
- Jumbo CD: Jumbo CDs are designed for investors who want to put in $100,000 or more. It functions similarly to a term CD with the exception of relatively higher interest rates.
Important features of CIT Bank CDs
- APY of 1.86% for a 1-year term
- Minimum deposit requirement for term CD and no-penalty CD: $1,000
- FDIC insured
Key differentiator
- Multiple CD accounts for every investor
- Online services
Limitations
- A high minimum deposit for some CD accounts
3. Live Oak Bank.
Best CD for Individuals Seeking Regular Income.
Live Oak Bank has come a long way from being a bank created for professionals and small business owners. While the bank still targets entrepreneurs and small businesses, it extends its online banking services to a wider audience.
One of the key differentiators of Live Oak Bank is its push for a streamlined digital experience. The bank offers an intuitive online application for a hands-on banking experience. In addition to supporting its own products, it allows you to link external accounts with Live Oak Bank Mobile app.
If you’re looking for an additional source of income, Live Oak Bank provides automatic disbursement of monthly interest to your account. Also, the interest rates on your CD is compounded daily, thereby boosting your net returns.
Important features of Live Oak Bank CDs
- APY of 1.90% for a 1-year term
- A minimum deposit requirement for CD: $2,500
- FDIC insured
Key differentiator
- Intuitive digital banking experience
- Automatic disbursement of interest
Limitations
- Limited CD terms
- Lacks special feature CDs
4. Barclays.
Best CD account for Individuals Seeking No Minimum Deposits.
Barclays is one of the oldest financial institutions in the global banking industry. While the bank is headquartered in the UK, it extends its banking products across different countries.
When it comes to CDs, Barclays American arm offers high-interest rates, automatic interest withdrawals to external accounts, and daily compounding features.
When compared with other financial institutions, Barclays’ primary advantage is its no minimum balance CD accounts. Additionally, the bank features CD laddering options, providing you with maximum flexibility with significant returns.
Important features of Barclays CDs
- APY of 1.75% for a 1-year term
- No minimum deposit requirement for CD
- FDIC insured
- Daily compounding feature
- Automatic monthly interest withdrawals
Key differentiator
- No minimum deposit requirements
- CD laddering feature
Limitations
- Online only operations
- Lacks special feature CDs
5. Navy Federal Credit Union.
Best for Veterans Seeking High-interest CDs.
Navy Federal Credit Union is the largest financial union that serves veterans in the country. The union is designed for those who serve their country and has been operational since 1933.
Navy Federal Credit Union offers competitive CD rates, with an APY of 1.50% for 12 months term. The only downside with Union’s CDs is the high minimum deposit requirement of $100,000 for the highest interest rates.
If you’re looking for a stable income product for your IRA, Navy Federal Credit Union’s special 37-month IRA/ESA certificate comes with an APY of 3.00%.
You’ll get standard features such as daily compounding of your invested amount and automatic monthly interest payments.
Important features of Navy Federal Credit Union CDs
- APY of up to 1.55% for a 1-year term
- Minimum deposit requirement for CD: $1,000
- Minimum deposit requirement for highest interest rate: $100,000
- FDIC insured
- Daily compounding feature
- Automatic monthly interest withdrawals
Key differentiator
- Wide operational network for veterans
Limitations
- High minimum balance requirements for maximum interest rates
- Lacks special feature CDs
6. Transportation Alliance Bank (TAB Bank).
Best for Investors Seeking Strong Online Banking Services.
Transportation Alliance Bank or TAB Bank started its operations in 1998, headquartered at Utah. The primary intent behind its establishment was to serve the transportation sector, but the bank has done well to diversify its offerings.
TAB Bank offers a wide range of deposit terms, starting at 6 months and going up to 5 years. As an online banking institution, you can open a CD online and receive an APY of up to 1.60% for a 1-year term.
TAB Bank has excelled in its online services, allowing you to deposit a check by simply taking a picture of your check and depositing it through TAB Bank’s mobile app. The user reviews for TAB Bank’s mobile application are largely positive.
TAB Bank provides standard CD features, such as daily compounding and automatic transfer of interest payments. If you’re saving for retirement, TAB IRA CD is a good place to start.
Important features of TAB Bank CDs
- APY of up to 1.60% for a 1-year term
- A minimum deposit requirement for CD: $1,000
- FDIC insured
- Daily compounding feature
Key differentiator
- A strong suite of online banking features
Limitations
- No network of physical branches or ATMs
- Lacks special feature CDs
7. Citizens Access.
Best for Investors Seeking Online Experience with Ability to Lock Highest Rates.
Citizens Access is another online banking service in our list of top CD rates providers. It is the online division of 190-years old Citizens Bank, with an online-only format.
Coming from a traditional financial institution, Citizens Access offers some innovative features such as ‘Citizens Access CD Rate Pledge.’ Under this feature, once you fund a CD within 10 days of opening the account, Citizens Access will lock the highest rate of interest between the date of account opening and funding.
Citizens Access offers a Liquid CD, which allows you to withdraw your funds as soon as 7 days of funding. While the interest rates for Liquid CD are slightly lower than standard CDs, you get more flexibility.
Important features of Citizen Access CDs
- APY of up to 1.50% for a 1-year term
- Minimum deposit requirement for CD: $5,000
- FDIC insured
- Ability to open Liquid CD
- Daily compounding feature
Key differentiator
- CD Rate Pledge to lock-in highest interest rates
Limitations
- High minimum deposit in comparison to most banks
- Interest rates are lower in comparison to other online banks.
- No partial withdrawals
8. Synchrony Bank.
Best for Investors Seeking an Established Online Bank.
Online banks are an uprising that conventional financial institutions find hard to compete with. Synchrony Bank is one of the leading online banks operational in the country, and it was rebranded as Synchrony Bank from GE Capital Retail Bank in 2014 only.
As an established name in online banking, Synchrony Bank ranks high when it comes to CD rates. In fact, it consistently offers some of the top rates among both online and traditional banks.
Synchrony offers a fair amount of freedom when it comes to interest payments. You can withdraw interest before the maturity period. Also, you can choose between an electronic deposit or a check issued for a Synchrony Bank account or any other external accounts.
It offers standard CD terms, daily compounding, and excellent online banking experience. Its mobile banking app ranks high among users and supports features such as check deposits and other banking activities.
Important features of Synchrony Bank CDs
- APY of up to 1.50% for a 1-year term
- Minimum deposit requirement for CD: $2,000
- FDIC insured
- Daily compounding feature
- Supports all banking services through the mobile app
Key differentiator
- Ability to withdraw interest before maturity
Limitations
- High minimum deposit in comparison to most banks
- No physical presence
9. Capital One.
Best for investors seeking an online bank operating in multiple countries + competitive interest rates.
Capital One, unlike other online banks in our list, is a hybrid financial service provider. The bank operates online while maintaining some physical locations, including the northeast, Louisiana, mid-Atlantic, and Texas. Also, Capital One extends its services in the US, the UK, and Canada as well.
Capital One offers competitive CD rates for mid-term CDs (12 months to 18 months), but its long-term CD interest rates are lower when compared with other online banks. The best thing about Capital One’s CDs is the zero minimum deposit requirements, allowing you to create a deposit with as little as $1.
Capital One guarantees the highest interest lock-in within 10 days from the date of account opening to funding. You can withdraw interest on a monthly or annual basis to a Capital One or external account. When compared with other banks, Capital One has a maximum withdrawal penalty of six months, better than most banks for long-term CDs.
Important features of Capital One CDs
- APY of up to 1.50% for a 1-year term
- No Minimum deposit requirement for CD
- FDIC insured
- Daily compounding feature
- Supports all banking services through online, mobile app, and phone banking
Key differentiator
- Operates across the US, the UK, and Canada
- Offers a rate lock-in guarantee
Limitations
- Interest rates are lower than other online banks
- Limited physical presence
10. Ally Bank.
Best for Investors Seeking Multiple CD Options and High Rates.
Ally Bank has aced the online-banking model ever since it was spun off from General Motors in 2009. The bank consistently offers high-interest rates across different types of accounts, such as savings accounts, CDs, and money market accounts.
Ally Bank provides access to different types of CD accounts, including a High Yield CD, Raise Your Rate CD, and a No-Penalty CD.
High Yield CD is quite similar to a standard term CD, with the bank providing an interest rate of 1.50% for a 1-year period. You may want to note that Ally Bank offers higher CD rates for long-term CDs (18 months, 3-year, and 5-year terms).
Raise Your Rate CD is another excellent option to benefit from high-interest rates, although the minimum lock-in period for this CD is 2 years. If the interest rate changes for your CD, you can request a raise every 2 years.
No-penalty CD is similar to what other banks provide. You get better liquidity and higher interest rates for a larger investment. Ally Bank offers non-penalty CDs for an 11-month term.
Ally Bank CDs come with additional features such as a high-interest rate lock-in period (10 days) and a 0.05% reward when you renew your CD.
Important features of Ally Bank CDs
- APY of up to 1.50% for a 1-year term
- No Minimum deposit requirement for CD
- FDIC insured
- Ability to choose different types of CDs
- Daily compounding feature
Key differentiator
- CD Rate Pledge to lock-in highest interest rates
- Multiple CD accounts for different investors
Limitations
- Interest rates are lower in comparison to other online banks.
- No partial withdrawals
What are the different types of Certificate of Deposits (CDs)?
Now that you’re aware of some of the best CDs available on the market, it’s time to understand some key concepts about CDs before you start investing.
A CD is a simple investment option that gives you a defined rate of interest for a fixed period. However, there are multiple options available for those seeking additional flexibility, including standard CDs, variable-rate CDs, liquid CDs, no-penalty CDs, IRA CDs, and index-linked CDs.
Since we’ve already discussed standard CDs in almost all of the above sections, let’s start with variable-rate CDs.
- Variable-rate CDs: A variable-rate CD attaches its interest rates with an external monitor, such as a popular index, treasury bill, or prime rate. You’re likely to earn a higher interest when these rates are up, but there’s a downside risk too.
- Jumbo CD: A Jumbo CD is designed for individuals who are ready to invest large lumpsum amounts, $100,000 or higher. Jumbo CDs come with higher interest rates when compared with a standard CD.
- Liquid CDs: If you need access to your deposit without wanting to pay the early-withdrawal penalty, a liquid CD is a wise choice. You can withdraw your funds after 7 days (varies among banks) of the initial deposit, although the rate of interest is lower among liquid CDs.
- Bump-up CD: A Bump-up CD allows you to request a raise in APY once or twice throughout the term length. It allows you to benefit from any growth in interest rates, but the minimum deposit requirements are usually higher for these CDs.
- No penalty CDs: A no-penalty CD is built for those who might need access to funds before the CD term. Unlike a standard CD, you don’t have to pay any penalty with these CDs. No-penalty CDs, usually, come with a short-term of 11 months and slightly lower interest rates.
- IRA CDs: IRA CDs are regular CDs that operate with somewhat different rules, including withdrawal schedules or maximum eligible investment limits. IRA CDs also offer tax advantages, including tax-deferred growth or post-tax contributions in a Roth IRA, which provides tax-free returns.
- Index-linked CDs: Index-linked CDs are tied to a certain index, such as Dow Jones or S&P 500. You can earn higher interest rates during an upward cycle. However, your investments are subject to any downward index movements with protection for the principal only.
What are the Benefits of a Certificate of Deposit (CD)?
CDs are a safe investment choice
For anyone witnessing a significant decline in his or her portfolio in the recent stock market rout or 2008 crisis, it’s natural to move towards safe investments. A standard CD has no effect of market conditions on its interest rate or the net amount you’ll receive after it matures.
Similarly, when you invest in a CD, you can rest assured that your principal is safe, even if you withdraw prematurely. The most you’ll lose is a portion of your interest, although some CDs may have a minor impact on your principal.
CDs have low or nil fees
Unlike an investment portfolio where you pay management fees, most CDs come with low to no management or maintenance fees. You can count the proceeds in your income for future calculations, although you’ll have to consider taxation.
The only fee you’ll end up paying is withdrawal fees in case of an early withdrawal. Some other charges may include external transfers at the time of maturing. All an all, you get to keep the maximum of your returns when investing in a CD.
CDs are FDIC insured up to $250,000
This is perhaps the most critical benefit of a CD. The Federal Deposit Insurance Corporation or FDIC has protected CDs since 1933. The FDIC protects your CD against a bank failure or bankruptcy.
You should understand that the maximum coverage amount as per the FDIC is $250,000, which means any amounts under that limit are protected by this agency. However, there is a catch. If you have a checking account, money market account, savings account, and your CD in the same bank, the maximum amount you’re covered for is $250,000, irrespective of the total combined balance.
You can increase this limit by having a joint CD account or opening an account with a different financial institution.
CDs offer consistent income
If you’re seeking an investment vehicle for consistent income during retirement or to achieve crucial life goals, you can use different CD strategies, such as CD laddering or a CD barbell.
CD Laddering: A CD ladder is an investment strategy under which you put money into different CDs with varying terms, which provides sufficient liquidity without compromising on returns. For instance, if you want to invest $10,000 but need liquidity, you can divide these funds into three equivalent figures and create CDs with 6-month, 12-month, and 18-month terms. This strategy will ensure that you’ll have access to at least one-third of your funds every six months.
CD Barbell: For those seeking a blend of liquidity and high-interest rates, a CD barbell strategy makes sense. You can put a portion of your funds in short-term CDs for liquidity and the remaining in a long-term CD for maximum interest rates.
Cons of investing in CDs
We cannot look the other way when it comes to the shortcomings of investing in a CD, so here is what you should know upfront.
- Your returns are subject to taxes, which means if you’re getting a return of 1.50% and fall under 24% tax slab, your effective APY after taxation would be 1.14%.
- CDs are merely keeping up with inflation, which could be a challenge for long-term investors. You want your money to grow in line with the inflation; otherwise, you will just end up losing the buying power of your money. Here is a piece of research you should look into.
Tips for Investing in CDs and Choosing Best CD Rates.
Invest in short to medium-term CDs
As an investor, it’s quite obvious to go for the highest interest rates when creating a CD account. However, most people overestimate their ability to stay put in an investment, thereby not taking into account their short-term needs or liquidity of their funds.
Choosing a long term is advisable only when you don’t require these funds for at least 5 years. In most cases, it’s better to stick with short to mid-term CDs (1 to 3 years). You can also use a CD investing strategy, such as CD laddering, to ensure liquidity.
Do not put your emergency fund in a CD
CDs involve an early-withdrawal penalty, which means you should only put funds that you don’t need for the specified term. In case you need a financial instrument to park your emergency savings without sacrificing high APYs, choose a liquid CD or a high-yield savings account.
Pro Tip: You should maintain an emergency fund to cover at least six months worth of essential expenses.
Seek best CD Rates across banks
We understand that it’s convenient to continue investing with your existing financial institution, but that may not provide the best yields. Most financial institutions lag their online counterparts (online banks) when it comes to offering higher yields on CDs.
When opening a CD account, make sure to look out for the best CD rates, although you should pay attention to other critical details such as FDIC protection and additional features, such as highest rate lock-in, etc.
When investing over $250,000 diversify into different banks
Most CDs are protected under the FDIC insurance, which means any funds up to $250,000 are insured against bank failures or bankruptcies (of financial institutions). However, this cover is limited up to the above limit only, so if you want to park over $250,000 in CD accounts, it’s best to create multiple CD accounts across different financial institutions to avail 100% insurance.
Bottom Line.
Now that you understand how CDs work, it’s time to put this knowledge to use.
CDs are consistent, dependable sources of income that can safeguard your portfolio against market volatility. Use them strategically to diversify your portfolio.
We would like to take up some key points before closing this post:
- Be careful when choosing a CD term. Take into account your short-term needs, liquidity requirements, and cash flow when choosing your investment term.
- Shop around for the best CD rates. Do not go with your existing financial institution before doing thorough research.
- Look out for FDIC insurance before choosing a bank.
Do you have any questions about CDs? How do you choose a bank for your CD? Tell us in the comments section below.