Bank CDs are certificates of deposits offered by banks and credit unions.
One of the very first “investment vehicles” I ever had was a certificate of deposit. I thought it was great because I was earning more in interest than a savings account, with no risk, for doing the same thing I would have been doing (i.e. keeping the money in a savings account).
A certificate of deposit, or CD, is a great place to store cash. It’s safe, and the CD rates are typically higher than you’d find in a savings or money market account. The only caveat is that you have to commit to the term of the CD to get the rate. Otherwise there might be a surrender charge, where you lose some or all of the interest.
The best CD rates typically come from online banks. We’ve looked at traditional banks, online banks, and we even show some investment firms to give you the best CD rates we can find.
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Our Top Picks For The Best CDs
Based on our evaluations of the top CD rates and features, we’ve found these CDs to offer the best rates and terms.
The Best CD Alternatives To Consider
While you might think that all CDs are made alike, there are some new players in the last few years that really give CDs a run for their money. These products might not be right for everyone, but they do provide a higher yield than savings accounts.
It’s important to note that rates can change almost daily. Here’s the most updated list of the best CD rates:
Other Top Certificates Of Deposit To Review
It can be hard to shop for a CD because of all the different options available. While the table above has the highest rates you’ll find each day, we also wanted to provide some context to these banks. Here are some other banks (including some in the table) to compare, and learn a little bit more about these companies.
What To Know When Comparing CD Rates
There are a few things to know when comparing certificates of deposit. We break down the common things to look for here.
Penalties
One of the biggest drawbacks of CDs is that they typically have a penalty if you don’t hold the CD for the entire term. A notable exception is the CIT Bank Penalty Free CD we mentioned earlier.
A common penalty is 60 days of interest. I’ve seen penalties that are the entire amount of interest (especially on shorter term CDs).
An example is this: Let’s say you have a $10,000, 12 month CD at 2.05% interest. If you held it for the full term, you’d get $205.00 in interest. However, this CD has a penalty, and you lose 60 days of interest. If you pull out your money after 4 months, you’d only get 2 months in interest – the penalty costs you about $40 in interest.
Term Length
A big factor in CDs is term length. The longer the term, the higher the interest you’ll usually receive. This is because the bank is more secure in your commitment to have the money in the account. As such, they’ll reward you more (versus a savings account).
However, the longer the term, the more significant the penalties we discussed above can be. For example, a 5 year CD might have a 1 year interest penalty for early withdraw. That’s pretty significant.
Check out the best 12 Month CD Rates here and see for yourself. Also, compare the term and interest rate to the average rates listed by the FDIC each month.
If you’re not sure you can commit the money for a long length of time, you might be better off with a high yield savings account or money market account. You could also look at setting up a CD Ladder to have several CDs with different term lengths.
The Difference Between CDs and Money Markets/Savings Accounts
Now that you understand CD penalties and CD term length, the difference between certificates of deposits on money markets and savings accounts should be pretty clear.
With CDs, you have a set time frame you must commit the money to in order to receive the yield promised by the bank. With savings accounts and money markets, there is no commitment for time – and so there are no penalties. If you have money in the account, you earn interest. If you don’t, no interest.
However, with money markets and savings accounts, the interest is typically lower than you’ll find with a CD because there isn’t a commitment to keep money with the bank. That commitment of time is what earns you higher interest on a CD.
Methodology
The College Investor is dedicated to helping you make informed decisions around complex financial topics like finding the best CD rates. We do this by providing unbiased reviews of the top banks and certificates of deposit rates for our readers, and then we aggregate those choices into this list.
We have picked CD rates based on our opinions of how easy they are to use, their costs and fees, any interest rates and bonuses provided, and a variety of other factors. We believe that our list accurately reflects the best CD rates in the marketplace for consumers.
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