Best CD Rates: Certificate of Deposit Rates (3 Month To 5 Year Terms)

September 14, 2009 by Millie Kay G.

While high interest savings accounts are usually the savings product of choice by many consumers, you may actually get better yields by looking into certificates of deposit (bank CDs) for a touch of diversity. In a nutshell, a certificate of deposit is a low-risk investment that can be ideal for cash you don’t need right away. At the end of the CD’s term or duration, the bank pays an interest rate that may be higher than a money market, checking, or regular savings account. Just like all other “safe” and “guaranteed” savings products like checking and savings accounts, CDs are backed by the FDIC. Whatever gains you earn from these vehicles are considered taxable income, unless they’re part of a tax-deferred IRA account or a tax-free Roth IRA.

Rates, fees, and minimums can change without advance notice, so it’s best to check with banks, credit unions, and even online brokerages and other financial institutions for current CD rates before committing your money. Following are places where you can find bank CDs with relatively attractive yields.

Best CD Rates At Online Banks

It’s usually cheaper to do business with online banks because they have less overhead than the brick and mortar establishments. They can also afford to give you better rates for your savings. Start out by checking out BankRate.com’s CDs & Investments section. Here, you can compare locally available or nationally available CDs with varying terms. When I looked at 1-year CDs, I found a chart of banks from around the country with interest rates that ranged from 1.29 to over 2%. For your convenience, I also put together a list of CD offerings from banks I’ve been tracking:

Online Bank
 CD Term
 CD Rate
 Min. Balance
EverBank 3 Months to 5 Years 0.95% to 3.05% $1,500
Ally Bank 3 Months to 5 Years 1.25% to 3.30% $0
Ally Bank 9 Months (No Penalty CD) 1.85% $0
FNBO Direct* 6 Months to 5 Years 1.00% to 2.51% $500
HSBC Direct 6 Months to 4 Years 1.25% to 2.00% $10
ING Direct 6 Months to 5 Years 1.55% to 1.75% $0
E-Trade 3 Months to 5 Years .10% to 1.40% $1,000
Dollar Savings Direct* 16 Months and 5 Years 2.25% for 16 Month CD 2.5% for 5 Year CD $1,000
Aurora Bank FSB 6 Months to 5 Years 1.52% to 3.10% $1,000
Discover Bank One Year 1.95% $2,500

Online banks with (*) require you to have an online savings account before you can purchase CDs with them. If you’re interested, you can open an account here with FNBO Direct or Dollar Savings Direct.

If you already have an online account somewhere, why not take a look at your bank’s CD rates to compare returns?

CD Rates At Discount Brokerages

It may not strike you as obvious places to check, but some online brokerages and mutual fund companies offer CDs in their product roster. Your discount broker can scan for CDs that fit your rate and term requirements. Before you sign up for a brokered CD though, the SEC warns that you should find out what the penalties are for early withdrawal and that you should learn about your broker’s background to protect against possible fraud.

Here’s a sampling of brokers and fund companies that have certificates of deposit available for customers: Fidelity has a 12-month CD with an APY of .75% (this is on the low side); while there isn’t a maximum maturity for Fidelity’s CD, they do have a minimum term of seven days. Charles Schwab has 1.5 to 2.5-year CDs with an APY of 1.90%. Even Scottrade, which champions the retail investor, offers CDs which you can inquire about directly.

CD Rates At Local Banks and Credit Unions

A local or regional bank may have CDs at attractive rates. For example, Bank of America has several offerings in my state. The High Yield CD has a locked 1.4% APY and a 12 month term for a $5,000 minimum. The Risk Free CD has a term of 9 months, a minimum of $5000, and a maximum of $500,000, along with a .90% APY.

Sometimes convenience can be a factor that outweighs higher interest rates. Over at my local bank, I can find CDs with flexible terms that range from one week to seven years. There aren’t any fees to open a CD, and I might even be able to use the CD as collateral for a personal loan. As for the interest, I can have it credited back to the CD, or have it transferred to my checking, money market, or savings account.

Finally, you can also try out credit unions and other banks in your area. They might have comparable or better choices, so it’s always best to shop around first!

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