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A certificate of deposit (CD) is a savings product offered by a bank in which a depositor (someone who has money to put into the bank) agrees to commit a certain amount of money for a set period of time, in return for a fixed rate of interest. With CD rates and terms starting at 6 months, not everyone has to be on the 5 year plan. Choose the level of commitment that’s right for your savings. Annual Percentage Yields (APY) are variable and effective.

If you’re looking to make the most of your savings, CDs (certificate of deposit accounts) regularly offer interest rates that are higher than the ones offered with traditional savings accounts.

In return for higher CD interest rates, the bank will expect you to deposit your money in an account for an extended period of time, which can span a few months to a few years. One thing to keep in mind about CDs is that you should only invest money that you won’t need for a while. Otherwise, you’ll risk paying a penalty for early withdrawal if you remove your funds from the CD before the term is up.

If you’re sure you can put money away for a longer period of time and you don’t want to pursue riskier investments, CDs might be worth a look. Interest rates vary for CDs across banks, so it’s best to compare the options available before you lock up your money.

Best CD rates of August 2020

• Sallie Mae: Current 1-year CD rate of 0.80% APY
• Marcus by Goldman Sachs: Current 1-year CD rate of 0.85% APY
• Ally: Current 1-year CD rate of 0.75% APY
• Discover: Current 1-year CD rate of 0.80% APY
• Alliant Credit Union: Current 1-year CD rate of 0.75% APY
• Synchrony: Current 1-year CD rate of 0.75% APY
• Capital One: Current 1-year yield of 0.50% APY
• TIAA Bank: Current 1-year CD rate of 0.60% APY
• Charles Schwab: Current 1-year CD rate of 0.15% APY

Ally – Current 1-year CD rate of 0.75% APY

Ally is one of the best online banks in the industry. In fact, Ally guarantees you’ll get the best rate on your CD with the Ally 10-day best rate guarantee. If Ally’s CD rate goes up within 10 days of closing on your CD, it will raise your rate to the higher one. Ally also offers a 0.05% loyalty reward if you renew your current CD. You can renew and choose any CD it offers. Ally also has no minimum balance requirements and it’s convenient to manage your account online.

Capital One – Current 1-year CD rate of 0.30% APY

It’s a common belief that Capital One only offers credit cards, but it has become a top contender in the CD market thanks to its awesome CD rates. With Capital One, there is no minimum deposit for 360 CDs and it’s FDIC insured. The 1-year interest rate for Capital One CD’s is 0.30%, and it increases with the 3-year and 5-year accounts. The highest interest rate you can earn on a CD through Capital One is 0.60%, which is offered on 5-year CDs.

Discover – Current 1-year CD rate of 0.60% APY

Discover may be known for cash-back credit cards, but it recently entered the CD market with competitive rates and top-notch customer service. There’s an app to monitor and access your account, and Discover is one of the only banks to offer CDs with a duration as short as 3 months. It does have an early withdrawal penalty, though, so if your CD term is less than 1 year, the penalty is worth 3 months of simple interest.

TIAA Bank – Current 1-year CD rate 0.60% APY

TIAA Bank offers a wide range of CDs, including its Yield Pledge CDs, which come with higher rates than the bank’s regular CDs. Yield Pledge CD rates are also often higher rates than the competitors, plus you can choose from terms that range from 3 months to 5 years with a $5,000 minimum deposit.

TIAA also offers a Bump Rate CD that starts at an incredibly high rate for a CD and gives you a one-time option to bump your rate during the term of your CD, so if the interest rate increases, you can take advantage of it. The Bump Rate CD is only available with a 3.5-year term, with rates starting at 0.75% APY.

On the downside, TIAA locations are limited. This bank only has brick-and-mortar locations in Florida.

Marcus by Goldman Sachs – Current 1-year CD rate of 0.85% APY

Marcus offers three no-penalty CD options and high yield CDs with nine different terms to choose from. Like TIAA, it offers a 10-day CD rate guarantee and no transaction fees. Marcus doesn’t have a mobile app or physical locations, though, so you’ll have to rely on either the Marcus website, the Goldman Sachs website or customer service for access to your accounts. It does offer CDs with a $500 minimum deposit and very competitive interest rates, though.

Charles Schwab – Current 1-year CD rate of 0.15% APY

Charles Schwab offers brokered CDs, which are sold by a broker rather than a bank. Different banks issue them, so you can choose a competitive rate and term length that’s best for you. It also allows you the opportunity to choose from variable or fixed-rate CDs. Some CDs require high minimum deposits, though, and instead of compounding interest, the interest is paid into your brokerage account at different intervals.

Instead of offering set terms, you can choose from a range of terms instead. For example, a 1-year CD falls into a 10-18 month range, which offers the same 0.15% APY rate for all CDs in that term range.

Synchrony – Current 1-year CD rate 0.60% APY

Synchrony is an online bank that offers great savings opportunities on some of the highest-rate CDs available, and it offers a wide range of term options, too. It doesn’t charge a monthly service fee, but it does require a rather high $2,000 minimum deposit, even on basic CDs. The minimum deposit may pose a hardship for some, but with that higher deposit comes the opportunity to earn more interest.

With Synchrony, you can choose from terms as short as three months and as long as 60 months. Synchrony doesn’t have physical bank locations, but you can manage your CD through 24/7 digital banking.

Alliant Credit Union – Current 1-year CD rate 0.55% APY

Alliant Credit Union serves people who work for, or previously worked for, certain employers, including United Airlines. It also serves family members of existing Alliant members, along with people who live or work in certain communities in Illinois, members of select organizations, or anyone who makes a $5 donation to the nonprofit group Foster Care to Success. Alliant currently has more than 390,000 members across the U.S., as well as competitive CD rates. There’s a minimum deposit of $1,000, though, and an early withdrawal penalties. The best way to apply is online.

Compare Best CD Rates of September 2020

Rates as of 9/21/2020

National average CD rates

Rates data as of 9/18/2020 from the FDIC

What is a CD?

As we touched on above, a certificate of deposit, also known as a “share certificate” at credit unions, is a way to earn a high interest rate on your savings by leaving your money in the bank for a specific amount of time. In general, a CD is less liquid because you can’t access the money during the term you agreed to without penalty, so you earn a higher interest rate in return. CD terms can be as short as 3 months or as long as 5 years, or sometimes longer, and the general rule is that the longer the term you agree to, the better the interest rate.

CDs are a safer investment than other high yield investments, like money market accounts or the stock market, because the FDIC insures deposits at member banks and credit unions up to the maximum amount allowed by law. You won’t lose your money as the market fluctuates, nor will your interest rate decrease (unless you agreed to a variable interest rate), so you’ll have the peace of mind with a CD that your money is safely tucked away.

Because CD interest rates are higher than traditional savings accounts, they can be a great way to maximize the return on your money in more ways than one. As a rule, putting your money into a CD will boost both your interest rate and your annual percentage yield, which is the return that comes from compounding the interest over the course of the term.

Most banks and credit unions typically require you to hold a minimum balance in your savings account or face monthly charges, and these charges can offset any interest you may have earned. That’s quite different than the life of a CD. As long as you keep your money in your CD for the length of the term, you will likely not incur any monthly charges.

CDs vs money market accounts

In general, CDs offer the highest interest rates. However, they also require you to set aside your money for a predetermined period of time. Make an early withdrawal, and you may get hit with a penalty. Money Market accounts offer you more flexibility to withdraw money on short notice, similar to the flexibility provided by a savings account.

With a money market account, you earn variable interest, but with a CD, you earn comparatively higher interest rates. Like savings accounts, money market accounts allow you to make up to six monthly withdrawals. Withdrawals during a CDs term will often result in a penalty.

CDs vs savings accounts

If your money is in a savings account, it’s available when you need it. Savings accounts are a useful way to stow money away for unexpected emergencies or large purchases. CDs, on the other hand, often charge a penalty if you want to withdraw your money before the agreed upon term is up. Your interest rate is most often higher and fixed for the length of the term, though, while interest rates on a savings account can, and do, fluctuate and are lower than CDs.

Traditional CDs vs IRA CDs

CDs and IRA CDs look similar on the surface, but if you dig a little deeper you’ll find subtle differences. An IRA CD is a CD that you buy with the funds you have in your retirement account and there are tax breaks on this type of CD. If you were to invest all the retirement funds in your IRA in a CD, then the IRA would become an IRA CD.

You can deposit as much as you like into a regular CD, provided that you’re following the terms of the CD and the bank. With an IRA CD, you are restricted as to how much you can invest. Both types of CDs may have early withdrawal penalties, but with an IRA CD, an early withdrawal will trigger taxes and penalties related to your retirement account. You can earn higher interest rates with an IRA CD, but the terms are usually longer than with CDs.

The impact of 0.10% on $1,000

Depending on what you’re looking for, you may end up considering several types of CDs, including IRA CDs held in a tax-advantaged account, jumbo CDs, which have a high minimum-balance requirement,or a liquid CD that allows you to take funds out without incurring a penalty. No matter which you choose, though, it’s important to understand the importance of APY on your CD. Let’s look at how a 0.1% change in the rate on your CD would impact the outcome over the term of the product. Assume your bank calculates and pays interest only once at the end of the year.

Calculating a 0.1% change on a $1,000 CD

As you can see, the 0.1% adds up, especially over time. A 6-month CD with a $1,000 deposit can increase from $11.93 in interest to $12.42 in interest by the end of the term, and interest on a 60-month CD would increase from $125.90 to $131.41. Adding a 0.1% change may not seem like much, but with higher amounts and longer periods of time, it can really add up. Use this information to help you to decide if you want to lock your money away in a CD, which bank is right for you, how much you want to invest.

CD Rate Calculator

Use this calculator to quickly figure the future value of a CD investment along with the effective APR you earned.

Investing in CDs

Saving money is a luxury that is not always available to everyone. For many people, there are good times and rougher ones, so they try their best to save wisely, and always stay financially prepared. These people come to realize it is not always the amount of money that you have to save or invest, it is often how you choose to do it that matters.

One option that many will consider, is a certificate of deposit, or CD over a savings account. While in many ways, it is similar to a savings account, there are benefits and risks to consider with a CD. This article will help you understand more about them, and how CDs can become a strategic part of your personal financial portfolio.

CD Basics

Understanding a CD is easy: they are a type of savings account, with a fixed interest rate and a set maturity date. You’d have to leave your money in the account until the maturity date and be rewarded with a nice return. The main risk is not accessing your money freely while the CD is maturing.

They are offered by banks, while credit unions offer what is called a share certificate that is basically structured and will act in the same way as a CD. Each are insured by the federal government.

While sharing some traits with a high-yield savings account, the differences are what make CDs more effective as investment products. The main differences include:

• A Fixed Term: anywhere from a few days to 20 years, most CD terms fall between 6 months and 5 years. It is not unusual to see terms of varied durations, and typically, the longer you wait for maturity, the more money accrues with better rates.
• A Higher Interest Rate: the main reason most people look to CDs over savings accounts, is to get a better rate of return over time. CDs held for five years currently have rates of 3ish%, while savings held for the same time are more like 1-2ish%. Interest rates for CDs are typically fixed.
• No Maintenance Fees: savings accounts will typically have monthly or annual fees, maybe both. They might have minimum balance requirements too – none of which you will find with most CDs.

The risk of not being able to access your money until maturity is a real consideration for anyone evaluating CDs as a savings option. While you will be able to legally and physically access the money, you will face penalties for doing so before maturity. You may lose the benefits of the CD completely for early withdrawal, so be aware of the commitment in time and choose the right savings method for your situation.

APY

A crucial point of comparison between lenders’ offers, will be the APY, or annual percentage yield offered by the CD. This is a number that reflects both the interest rate AND the frequency of compounding during a 365-day period.

The reason the APY is just as important as the interest rate, is that each time your CD compounds its interest, it will add more principal to your CD. So, one compounding daily is more attractive than one compounding monthly or more infrequently, if all are offered at the same interest rate.

In the same manner, a lower interest rate with higher compounding instances could yield you more from a CD than one that had higher interest but only compounded interest annually. Ideally, you want a CD with the highest possible interest rate and the highest possible frequency of interest compounding…or, the highest APY.

Special Types of CDs

While the basics for a CD are as outlined above, there are some special types of CDs that may be worth investigating for your own purposes. Note, that with these options, steeper deposits, minimum balances and other terms may apply to your CD, so be aware of all terms and conditions.

• Step-up CDs: offer you a periodic bump-up in the interest rate, typically at fixed calendar intervals. For instance, a 5-year CD might increase its rate a fixed percentage, annually.
• Bump-up CDs: similar to step-ups, these will offer a bump up on request, when your bank increases its APYs. Most often, you will get one or two times to bump-up the rate with one of these products.
• Jumbo CDs: essentially the same as any CD, but with a much higher deposit required (~$100K or more) to receive much higher APYs
• Liquid CDs: allow for early withdrawal without penalty. These CDs will usually carry a lower rate of return, because of the added flexibility in being able to access money before maturity.
• IRA CDs: a CD that is held in a retirement account for tax advantages.

Note that not every product will be available through every bank…but some of the terms and the flexibility these special CDs bring may lead you to shop around more diligently.

CD Strategy and Laddering

Once you understand the basics of CDs, you can look at them more strategically in how they play into your own situation. As drawn out so far, to understand the strategy you want to focus on the structure of the CD, dissecting its term, the interest rate, and the APY.

Note that while most CD terms range between six months and five years, there are actually CDs that might fall anywhere in between, and go out much further than that. The variance in terms and maturity dates allows you to think about your CDs in more strategic terms toward solving the puzzle: when can I access my money?

If you are dealing with an amount you know you will not need until the maturity date, it is easier to “set it and forget it” and maybe just roll over the balance when it matures or access it then. However, there is a common strategy called “laddering” that takes advantage of the variety in CD time frames.

Laddering

Laddering CDs is a simple, but very sound strategy for CD investment. We’ll use an example of having $10,000 to invest. Also assumed, is that you will not need to access these funds for five years. Five years is targeted, because that is the time frame when most banks offer their highest possible returns on normal CDs.

Rather than putting the entirety of your investment in a single option, you spread them out, using their maturity dates as a means to select them:

Cd Savings Bonds

1. $2500 in a CD maturing in one year.
2. $2500 in a CD maturing in two years.
3. $2500 in a CD maturing in three years.
4. $2500 in a CD maturing in four years.

Cd Savings Rates

These are the “rungs” of your ladder.

Cd Savings Plan

The strategy comes from using the staggered maturity dates. As your first CD matures, you roll its proceeds back into a new, five-year CD. The same happens the next year, and so on, until you have a CD maturing every year. Each reinvestment will grow from the initial $2500, and you apply your increased balances to the highest possible five-year APYs.

After five years, you will have the option to collect your money or continue to reinvest it, and keep the interest rolling in at its highest.

You can also see, if you use the strategy of the ladder combined with an understanding of maximizing your APY, you can certainly make the most of your $10,000 in CDs.

Cd Savings

The Penalties of Early Withdrawal

As mentioned, though you can remove your money from a CD early, unless it is a liquid CD you will face a penalty. Most banks will charge you a specific amount of interest, often secured by a minimum dollar amount, e.g., $25, or 6 months interest.

You’ll want to understand fully what it means if you were to draw out money from your CD early. Different banks will certainly be offering varied rates and specifics about what will occur. For example, Wells Fargo currently charges 12 months interest as a penalty for withdrawing on any CD term over 24 months, while Ally bank has a range of penalties scaling up as the years in the CD’s term also rise.

The point being, sometimes it will be to your benefit to understand the penalties, for they may be acceptable to you in a given situation. If you need the money for a medical emergency, and would face a $25 penalty to access it, you will likely pay the penalty to handle your situation.

Trying to anticipate the future, helps in CD purchases. You will want to leave a CD untouched for as long as possible to gain your returns, or you might be better off with a high-yield savings account, where your money is accessible. It is impossible to plan for every emergency, but forethought should certainly guide your decisions.

Summing Up

Cd Savings Calculator

Most financial advisors would suggest adding CDs as a part of your savings/investment portfolio. They can earn you more money than a savings account, and are generally safe, low-risk options.

Cd Savings

Look to use an amount of money that you are comfortable not accessing for up to five years, to maximize your returns. If you can go longer, great – look for a variety of different terms, and think about splitting your investment into rungs of a CD ladder.

When comparing offers, you will want to look not only at the interest rate, but also the number of times it is compounded, a combined sum known as APY. Aim for your highest interest rate, but a better APY can make your CD truly perform.

Compare offers at your own bank, as well as other banks and credit unions. As with any financial decision, consult the help of a qualified advisor or planner to help protect your future. When you are ready to invest in a complete CD strategy, you will find that they can be a smart and simple way to make more out of your deposits.

Cd Savings Account Chase

I very frequently get the question:

'What's going to change in the next 10 years?' And that is a very interesting question; it's a very common one. I almost never get the question: 'What's not going to change in the next 10 years?' And I submit to you that that second question is actually the more important of the two — because you can build a business strategy around the things that are stable in time. … [I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher,' [or] 'I love Amazon; I just wish you'd deliver a little more slowly.' Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.' - Jeff Bezos

• Every investment you make comes with a substantial risk of loss of principal or purchasing power. The safest investment you can make is investing in yourself.

  If you let others manage your investments, the single biggest factor you can control is your investment-related expenses, as they have a big impact on compounding.