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When you are creating a financial plan and strategy for yourself, it’s good to start with a budget.
Once you have a concrete budget in place, it will help you determine how much you can set aside in savings each month.
You should start by saving an emergency nest egg.
With your emergency savings, the funds should be very accessible.
The best place to keep emergency funds is typically a high-yield savings account because there are accessibility and security, plus you can earn some interest on your savings.
Beyond that, you can start building out your other saving and investment strategies.
Most people like to pair safe ways to save their money with riskier investment strategies.
One of the safest ways to store your money is in a certificate of deposit or a CD and below we explore what these accounts are, and highlight the top 10 best high-yield CD accounts right now.
What Is a Certificate of Deposit (CD)?
A CD is a way to save your money that offers higher interest rate earned on your deposits than a checking or savings account.
A CD is federally insured, and the primary way it’s different from a savings account is the fact your money is less accessible.
Most CDs have a fixed interest rate and a set maturity date, which is the date you can withdrawal the funds without a penalty. Most CDs don’t charge a monthly fee.
If you bank through a credit union, there are also share certificates, which are the same thing.
When you invest in a CD, you tell the bank you will leave your money in that account for a certain period.
That period is called the term length, and during this time you can’t access your money in the account without paying the penalty.
One of the big areas where CD accounts can differ from one another is the term length. They can range from three months up to five years on average.
In many cases, the longer the term length you agree to, the higher the interest rate you’ll earn.
The vast majority of CD accounts have fixed rates so the annual percentage yield or APY will stay the same throughout the term length.
The primary benefit of a CD over a savings account is the fact that the rates are usually higher on a CD.
Different Types of CDs
There are different specialty CDs available. Some examples of the types of CD accounts are:
- With a bump-up CD, you can request that your bank give you a higher rate if they increase their APYs. The downside is that there may be larger minimum deposit requirements with these accounts, and you may also only be able to only request an APY increase once throughout your term.
- A step-up CD is an option that does include rate increase—the APY goes up at set intervals so you can plan more on what your APY and earnings will be.
- No-penalty CDs will let you withdrawal the money from your CD whenever you want, and these can also be called liquid CDs. The downside of the flexibility of one of these CDs is the fact that the rates are typically lower and you are probably also going to have to meet a minimum balance requirement.
- A jumbo CD has a high minimum balance requirement—for example, the requirement may be more than $100,000—but you get a higher rate.
- AN IRA CD has tax advantages because it’s in an individual retirement account.
What is a CD Ladder?
You may also hear about a CD ladder, so what is it?
A CD ladder lets you invest in CDs with different term lengths. You invest the same amount across the different CDs, and then when your shorter-term CDs mature, you take the proceeds and put it in a new long-term CD.
The Benefits of a CD
As was briefly touched on, the primary benefit of using a CD as a savings mechanism is that you can earn interest on the money that you set aside.
Beyond that, CD benefits include:
- You may be unsure about whether or not you want to take on the risk of the stock market, so CDs give you a sense of security, but you’re not just letting the money sit there without earning interest. If you don’t earn interest on your savings, you won’t be able to keep up with inflation so having money sitting in a non-interest-bearing account is rarely a good idea.
- CDs provide stability in your returns. Returns from the stock market aren’t predictable and can be incredibly volatile. CDs usually have fixed rates and fixed returns, so you know what to expect.
- Most CDs are incredibly inexpensive to have and maintain with no fees or very low fees.
- Since they aren’t accessible, CDs can force you to keep money set aside.
What Is the Difference Between a Money Market and a CD?
A money market account is another savings vehicle with similarities to a CD as well as a savings account, but what are the key differences between a money market and CD?
A money market account does earn interest, but the earned difference between it and a CD is that you can usually withdraw your money whenever you want, more like a traditional savings account.
As a result, the rates on a money market account tend to be lower than a CD.
A CD can be a better option if you can aside money that you won’t need to access for a few months or years, and you can meet any minimum balance requirements.
Opening a CD with an Online Bank
Many of the accounts covered in this ranking of the top 10 best high-yield CDs are from online banks.
Across the board, online banks are often able to offer better interest rate earnings and fewer fees than brick-and-mortar banks, making them an increasingly popular option.
Online banks don’t have the overhead costs of traditional banks, which is why they’re able to offer these advantages to customers.
Despite the benefits of online banks, some consumers are still nervous about opening an account.
Do your research to ensure it’s a reputable bank that focuses on having high-level security, and you’ll find that online banking is just as safe as traditional banking, and often significantly more convenient.
Choosing a CD Account
If you’re thinking about opening a CD account, how can you compare them, and how can you go about finding the best option for you?
The following are things to consider when choosing and opening a CD account.
- Think about the term and early withdrawal fee. Even more than the interest rate, the term, and withdrawal fees are probably the most important factors to keep in mind when choosing a CD. If there’s a chance you could need access to your money before your term ends, it’s going to play a big role in the option you choose. If you want to use a CD as a way to save money for a short-term goal, look for something with terms of six months to a year. If you’re thinking more about retirement savings, then you can go with a longer-term CD.
- Beyond the terms, the CD interest rates are the next thing to think about. You’ll compare the annual percentage yield or APY, which factors in how often your interest rate compounds. The more often your interest compounds, the more you’ll earn.
- Think about large economic factors, including potential interest rate hikes. If it’s expected that there may be an upcoming interest rate hike, you might wait until you open a CD.
- Minimum deposit requirements can be a deciding factor with CDs. Some CD accounts don’t have any minimum deposit requirement to open and maintain an account, while others can go up to thousands of dollars.
- Choose a CD that’s insured. Make sure before you open an account it’s either insured by the FDIC or NCUA in case the bank where you open the account fails.
Finally, don’t agree to any automatic rollovers. When your CD reaches its maturity date, you can cash out, or you can opt to let the bank automatically roll it into a new CD that will have the same terms. This doesn’t always represent the best financial option, so don’t opt-in.
How Are CD Interest Rates Determined?
There are three primary factors that determine the interest rates of a CD account.
One is the length of time until the CD matures. The second factor is the interest rate environment at any given time, which is basically how much other banks are paying on deposits.
The expected rate of return on the part of the bank is the third factor.
This means that you are letting the bank borrow your money for a set period of time. They can then lend that money out to other people during the terms of your CD.
They estimate how much they can earn with your deposit, and that’s the third thing that goes into a bank’s determination of how much they’ll offer on CD accounts.
What Are the 10 Best High-Yield CD Accounts?
The following are some of the best CD accounts with the highest APY and the best terms available right now.
1. Marcus High-Yield Certificates of Deposit
Marcus is an online-only bank from the investment firm and big-name financial company Goldman Sachs. Marcus is an online bank geared quite a bit toward the needs of Millennials.
The philosophy of Marcus is built on transparency, low fees, and high returns.
They feature a high-yield CD with varying APY rates, depending on the terms.
Examples of the terms and rates from Marcus include:
- 40% APY with a 12-month term
- 45% APY with a 2-year term
- 50% APY with a 3-year term
- 65% with a 6-year term
The high-yield CD from Marcus includes a 10-Day CD Rate Guarantee.
This guarantee means that if you open a CD and deposit at least $500 during the first ten days and the rate goes up during this time, you automatically get that higher rate.
If you were to deposit $5,000 with Marcus initially and your term length was five years, you could earn up to $685, compared to the national average of $252.
2. Capital One 360 CD
Capital One is a well-known and reputable financial services company, and in recent years they’ve been expanding their online-only offerings.
They currently have a CD with a very competitive 2.40% APY for terms of 12 months. If you want something shorter, they have six- and nine-month terms.
The terms go up to 60 months, and in that case, you can currently get a maximum APY of 2.30%.
Capital One 360 CD accounts are insured by the FDIC.
There is no minimum to open an account, but you do have to make an initial deposit of whatever amount you want.
The Capital One 360 CD is online-only, and it’s easy to open an account.
If you do withdraw your money early from one of these CDs, there are penalties.
If you have terms of 12 months or less, the penalty is three months of interest.
If you have terms longer than 12 months and you make an early withdrawal, the penalty is six months of interest.
You can’t make partial withdrawals during your term.
3. Citizens Access Online CD Account
Citizens Access is an online bank that offers a CD APY of up to 2.45%, depending on the terms of your account.
They do have short-term options starting at six months, which is good if you want more flexibility and access to your money.
With the six-month CD, the rate is still fairly generous among competitors at 1.75% APY.
If you can extend your terms to 18 months, the rate goes up to 2.25%.
For the maximum rate of 2.45%, you have to commit to a five-year CD term.
Be aware that with the Citizens Access account, you do have to make a $5,000 minimum deposit.
To receive the interest earned on a CD, you can stick with the default option in which the credit goes to the CD principal. You can also transfer interest payments to a Citizens savings account or an external account that you link to your CD account.
Citizens Access offers the CD Rate Pledge, so once you fund your online CD, within ten days of opening your account, you can lock in the highest rate offered by the bank for the term you’ve selected between the date you opened your account until the date it was funded.
If you have a CD from Citizens Access and you access your money before the maturity date, there are penalties.
The bank charges 90-days interest on the amount withdrawn for accounts with terms of 12 months or less.
For accounts with terms greater than 12 months, Citizens Access charges 180-days interest on the amount withdrawn.
According to Citizens Access, there may be some situations when they will waive the penalty for early withdrawal.
4. Discover Bank High-Yield CD
Discover Bank has expanded beyond being just a credit card company, and they now offer a lot of different consumer online bank account options, including a high-yield CD account.
Discover Bank offers terms starting at 2.40% for a 12-month CD term.
For a 24-month term, the APY goes up to 2.45%, and it’s 2.50% for a five-year term.
You can open an account with only $2,500 as an initial deposit, and you aren’t charged any account fees on Discover Bank CD accounts.
The penalties are as follows for CDs opened with Discover:
- For accounts with terms of less than a year, the penalty for early withdrawal is three months simple interest
- For accounts with terms of anywhere from one to less than four years, the penalty is six months simple interest
- For accounts with terms of greater than four years but less than five years, the penalty charged is nine months simple interest.
- For more than five years to less than seven years, it’s 18 months simple interest.
- For terms of seven to 10 years, it’s 24 months simple interest.
If you want one of the shortest terms on the market perhaps to save for a very short-term goal or try a CD out, Discover Bank offers terms of three months with an APY of 0.35%. For a maximum 10-year term, the APY goes up to 2.60%.
5. CIT Bank CDs
CIT Bank has different CD options. These include:
- Term CDs with locked-in interest rates
- No-penalty 11-month CD that provides access to your funds
- Jumbo CDs to maximize returns
With the term CDs, up to a 2.40% APY is available with a $1,000 minimum opening deposit. The term to earn the maximum APY is only 18 months, significantly shorter than with many other banks.
Interest compounds daily, the accounts are FDIC-insured, and there aren’t any maintenance fees.
With the no-penalty 11-month CD, CIT customers aren’t penalized is they need to access their money before the maturity date of the account. The rate is 2.05% APY, and again, the interest is compounded daily.
Jumbo CDs from CIT have up to a 1.75% APY with a minimum $100,000 opening deposit.
6. Barclays US Online CDs
Barclays offers CDs in terms ranging from three months up to 60 months.
For a three-month CD from Barclays, you will earn an APY of 0.35%, and this goes up to the maximum rate of 2.45% for 60-month CDs.
The account is FDIC-insured and interest compounds daily.
No minimum balance is required.
7. Synchrony Bank CDs
Synchrony Bank is one of the top online banks, and they have one of the longest histories in the online-only banking landscape.
Along with savings accounts, Synchrony does offer online CDs.
Terms on their FDIC-insured CDs range from 3 to 60 months.
You can manage your Synchrony accounts quickly and easily from anywhere from their mobile app and 24/7 digital banking features.
A 12-month CD at Synchrony will earn 2.40% APY, with a $2,000 minimum opening deposit requirement.
The highest APY Synchrony will pay is 2.55% for a term of 60 months.
Synchrony also offers an IRA CD, so you get the tax advantages of a retirement account with the stability of a CD.
The IRA CD account from Synchrony requires that you make a $2,000 minimum deposit as well and with terms of 12 months, you can earn a 2.40% APY.
Synchrony says they may charge a penalty if you withdraw funds from your CD before it matures, and it ranges from 90 days of simple interest for terms of 12 months or less up to 365 days of simple interest with terms of 48 months or more.
8. Ally Bank Online CDs
Ally Bank is in many ways similar to Synchrony Bank in that both have been pioneers in online-only banks.
Ally offers several different online high-yield CD options.
Their standard high-yield CD features terms ranging from three months to five years.
For terms of three months, the APY is 0.75%, and it goes up to 2.50% for a five-year account. These CDs are available as an IRA.
There is also a product called the “Raise Your Rate CD.”
With this Ally product, you can have the opportunity to raise your rate once over a two-year term or twice over a four-year term.
Currently, the rate for a two-year CD is 2.35%, and the rate for a four-year CD is the same. This is also available as an IRA CD.
There is a No-Penalty CD from Ally also. The terms are 11 months, and the APY depends on the opening deposit.
If your opening deposit is less than $5,000, the APY is 1.70%. If the opening deposit is at least $5,000, it’s 1.95%.
For a $25,000 minimum opening deposit, the APY is 2.10%.
You can withdraw your money any time after the first six days when you funded the account and keep your earned interest with no penalties.
9. American Express CDs
American Express has been wading in the world of personal savings accounts, and they do offer a CD option.
Terms range from six months up to 60 months, with APYs of anywhere from 0.40% to 2.35%.
When you receive interest on your CD account, it defaults to being a credit to your CD account until your account matures.
You can also change this and have your interest transferred every month to your American Express High Yield Savings Account.
You can also have it transferred to a linked account, or you can have it mailed to you as a check.
10. SallieMae CDs
Finally, rounding out our list of the top 10 best high-yield CD accounts is SallieMae.
SallieMae can be a good option if you have a larger minimum deposit you’d like to put in a CD account.
You need to have a $2,500 minimum deposit, but if you have that, you get the same competitive APY whether you have a 12-month CD, a 15-month CD or an 18-month CD.
Each of the three term options has a 2.45% APY.
The highest rate available is 2.50% which you can earn on 30-month, 36-month and 60-month accounts.