If you’re looking for an investment that offers rewarding returns and zero risks, a CD just might be the option for you.
A certificate of deposit offers you a secure place to stash your money and earn interest, with FDIC insurance to back it up. CDs are accounts like online savings accounts or money markets or checking accounts. CD’s may earn higher rates than those other accounts, but your money is “locked up” for a period of time. This means you will pay a penalty if you need to withdraw the money from your CD before the term ends.
While CDs can be a good idea in general, not all of them are created equal. In this guide, we’ll tell you where to find the best CD rates, provide you with a few tips, and share some alternatives to CDs you might want to consider.
Guide to the Best CD Rates
Compare the Best CD Rates Today
The first stop in CD investing is comparing rates. Very often your local bank doesn’t have the best rate. You can use the tool below to quickly compare today’s best cd rates, which are updated daily.
Top Banks for CD Rates
With Discover, you can open a CD account for as short a term as 3 months or as long as 120 months. The 120-month (10 year) CD is most rewarding, currently offering 1.60% APY, but that’s a long time to wait.
If you’re willing to part ways with your funds for just 2 years, you can earn a rate of 1.55%. The minimum deposit on Discover CDs is $2,500.
Synchrony is another top online bank, offering rates between 2.00% APY on a 12-month CD to 2.25% on a 60-month CD. You can open a cd at Synchrony for as little as 3 months, but with a rate of 0.75% you’re better off stashing it away in a high yield online savings account.
They have several additional product offerings to accompany your cd should you desire including: Money Markets, High Yield Savings, IRA CDs and IRA Money Markets. Read our full Synchrony review.
CIT Bank No-Penalty 11 Month CD – 1.80%
We can’t praise CIT Bank enough. One standout CD that should be on your radar if you’re looking for a short-term investment is their No-penalty 11-month CD.
With a current APY of 1.80% and no penalties for withdrawing your funds after the first 7 days, the no-penalty CD is an excellent alternative to an online savings account. If you’re comfortable leaving your money alone for a while, you can get even higher rates with their longer CDs. Read our full review.
How to Invest in CDs
Which type of account you choose depends wholly on your goals.
If you choose to utilize a CD (or a few) in your investment or savings strategy, here are some tips to help you maximize your returns:
Know Your Terms
With a CD, you commit to leaving your funds untouched for a period of time. If not, you could be penalized and lose out on the interest you’ve accrued.
Fortunately, CD accounts come with a wide range of terms, giving you the flexibility to choose a timeframe that suits your situation.
Most CDs range from a few months to 5 years or more.
Interest rates climb as the length of your term does, but so does the penalty for early withdrawal. When you invest in a 5-year CD, the penalty for early withdrawal will be far higher than it will be for a 1-year CD.
If you know you’re likely to need access to your funds in the near future, opt for a shorter term.
If, however, you have enough money saved elsewhere to stay afloat if the unexpected occurs, take advantage of the high rewards a long-term CD has to offer.
Know the Penalties
Remember, every CD account is different, and not just in terms of CD lengths and interest rates.
Many short-term CDs, for instance, will dock you 2 months worth of interest if you withdraw early. But that standard doesn’t apply to every CD.
Some banks charge higher penalties for early withdrawal, and some impose less extreme penalties.
Options like CIT Bank’s 11-month penalty-free CD, for example, don’t limit you at all. The key is to research the best CDs, looking at both their rates and penalties.
Try CD Laddering
If you want to be able to access your funds and still earn high interest, get strategic with CD laddering.
The concept of CD laddering entails setting up a series of CDs that reach maturity at different times. With CD laddering, you can open long-term CDs, still access funds frequently, and reinvest as interest rates climb.
CD laddering is a great way to play the investing game even if you’re averse to risk.
Alternatives to CDs
Whether you’re saving for a house, funding a college education, or padding your emergency fund, CDs, money markets, and online savings accounts are a rewarding route to reaching your goals.
Knowing which of these accounts to choose requires a little more thought into your goals and the time in which you want to meet them.
And if you’re looking to invest, there are a few peer-to-peer platforms that might be ideal for you,
CDs, Savings, and Money Market Accounts
Here are a few key factors you should consider as you choose an account for your savings:
- Interest: You’ll find the lowest interest with a traditional bank’s savings account. Those rates increase with online savings accounts and climb even higher with a long-term CD or money market.
- Liquidity: If you need to be able to access your funds at any given time, a savings account or money market are more suitable than a CD, with the exception of a penalty-free option.
- Minimum balance: If you’re looking for little to no minimum balance, a savings account is ideal. CDs, and especially money market accounts, are more likely to come with steeper minimums.
- Security: Each account is FDIC insured, so the funds you invest are guaranteed to be protected. What isn’t always guaranteed is interest. CD rates are locked in for the length of your term, but savings and money market account rates can fluctuate.
High Yield Online Savings Accounts
If you like the accessibility of a savings account, you’re in luck.
Online banks don’t have to funnel their resources to supporting physical branches, meaning more money for you.
Interest is still very competitive, and you get access to your funds, convenience withdrawals, and simple account management, usually with little to no initial account minimum.
Our top pick: BBVA. Read our full BBVA Bank review.
If you plan to utilize your account as more of an investing tool than a savings strategy, consider Lending Club, where investors see average returns between 5 and 6%. Those returns are higher than comparable CDs.
Lending Club loans aren’t FDIC insured, and you could lose money if the recipients of your loan default. To avoid that risk, invest small portions of your money across several loans. Read my Lending Club Review.
Like Lending Club, Fundrise allows you to invest your money into projects that interest you, namely real estate ventures.
And like Lending Club, it comes with risks. To curb them, Fundrise’s intuitive technology finds a balance between surefire large-scale investments and smaller, riskier ones. Fundrise puts your money to work for you, with a current annualized dividend yield of over 6%.
Bottom Line on CD’s
If you like the sound of no-risk, all-return investing, a CD is definitely worth your time.
By choosing one of the platforms above, you can ensure you’re getting some of the best CD rates available.
With a goal in mind for your savings, you can choose a CD with the perfect term length, policy, and rates to hit your target.
You may even find your CD account to be a rewarding vehicle for investing. It’s all up to you.