How We Pick the Best CD Accounts - Review Methodology
Certificates of deposit are among the safest and most common ways to earn high returns on money you deposit. In return for the higher rates, there is a restriction: a set account term, which means you cannot withdraw money before the CD matures without paying penalties. Almost all online banks offer CD accounts.
Some offer unimpressive rates of return, some impose complicated restrictions, some are inflexible regarding terms... we discovered that finding the ideal CD is not as easy as it might seem.
So we researched dozens of industry-leading online banks to find those that provide the best rate on a certificate of deposit and a reasonable variety of term lengths. We considered multiple account types, searched for banks that offer no-penalty accounts, and checked additional benefits that are offered by some banks.
Along the way, we created a criterion-based objective methodology to help us identify the best online banks for CD savers.
CD accounts are a safe place to keep your money, especially if you open your account at a bank that is insured by the Federal Deposit Insurance Corporation. Each account holder gets insurance of up to $250,000. It means that if you have a joint account with your spouse, it will be insured up to $250,000.
FDIC insurance is the first thing that you should check before signing up for the highest-paying CDs because it guarantees that your money will be safe even if the bank closes.
As a practical matter, all US banks are insured. If your bank’s headquarters are outside the US, accounts are probably not insured. You can verify your bank’s status with the FDIC’s BankFind feature.
The $250,000 cap applies to all the accounts you have at a bank even if the bank operates under multiple trade names. You can spreadlarge sums of money across multiple banks to ensure that all of your funds are insured, but be sure to check the fine print. Many banks are related, and you may accidentally exceed the cap by sticking with the bank with the best CD rates.
Types of CD Accounts
CD accounts come in various forms, and it’s up to you to decide which best fits your financial goals. We’ll give you a short explanation of the five most common CD accounts.
Traditional term accounts are the everyday certificates of deposit that you can get at just about any bank. The traditional CD comes with simple requirements, a fixed APY, and a defined term. Most banks specify a minimum opening deposit, but you can find online banks that have no minimums.
Traditional accounts often deliver the best rate on CDs. The disadvantage of these accounts is that you will pay a penalty if you withdraw funds before the account matures - that is, before the end of the term that was specified when you opened the account.
Bump-up CDs are much like traditional CDs. The difference is that you can increase the interest rate once or twice during the term of the account under certain circumstances. However, bump-up accounts usually deliver lower APYs than regular CDs.
No-penalty CDs address the main disadvantage of these accounts: the way your funds are locked up during the account’s term. If you withdraw funds before your CD matures, the bank will charge you penalties. Even the best CDs of 2021 have steep penalties for early withdrawals. No-penalty CDs allow you to withdraw funds anytime you want without paying penalties.
IRA CDs are the way to go if you are saving for retirement. Not only are the funds protected from impulse purchases, but you also are free of paying certain taxes.
Jumbo CDs deliver higher interest rates because you’re depositing a larger amount. If you have a lot of money to invest all at once, a Jumbo CD might be the best way to protect some or all of it.
Annual Percentage Yields
After you familiarize yourself with different CD accounts, it’s time to find a bank that will give you the best interest rates for the CD term you choose. Generally, higher APYs come with a long-term account. But some banks also offer high APYs with short-term CDs.
The next thing you should consider when choosing a CD account is the period you want your money locked into the account. The online banks we’ve evaluated offer terms that range from three months to five years.
You’re unlikely to find a CD with a term shorter than three months, but there could be CDs with longer terms if you like. You probably don’t give up much interest by accepting a shorter term and simply renewing when your CD matures.
Most banks offer higher long-term CD rates, but you can find good offers even for short-term accounts.
The minimum opening deposit is the money you need to deposit when buying a CD. The amount varies from bank to bank, and some online banks don’t set a minimum deposit amount.
Your opening deposit is the only deposit you’ll make. A CD isn’t a savings account that you can deposit into and withdraw from. Think of it as a financial instrument that you purchase with a known value at maturity - more like a Treasury bond than a savings account.
Another thing you should have in mind when picking high-interest CDs is the fee you’ll be charged if you need to withdraw your money before the CD matures. Most banks charge penalties based on the term of the CD.
If you think you might need access to the money before maturity, consider a no-penalty account. The APY is lower than with a regular CD, but you won’t lose money to penalties if you find you must withdraw funds before the maturity date.
After your CD account matures, the bank will give you a grace period to decide what you want to do with your funds. With the highest-yielding CDs, you can qualify for higher rates if you renew your account. Of course, you are also free to close the account and take your money. If you don’t do anything, most banks automatically renew your account after the grace period.
Most of the online banks that sell CDs also offer savings accounts, money market accounts, personal loans, and many other products. The banks we review take those factors into account, along with the quality of their online and mobile banking platforms.
We didn’t forget to check out customer support. We look for reputable operators that offer a selection of customer support channels.