CDs (short for Certificate of Deposit) have a special place in the banking world. They aren’t quite as popular as savings accounts, but they can certainly be useful in some cases. I like them primarily for short-term savings – when you don’t need the money right away, but you need it soon enough to make investing too risky. I’ve put together this page to help you find the best CD rates and understand what to look for when picking the best CD accounts.
If you are looking for savings accounts instead, please visit our best savings accounts page.
Here is a list of the best CD rates, updated for 2014. Pay attention to the APY, the CD term and the minimum deposit when choosing CDs:
Finding the Best CD Rates & Terms
Just like when picking the best savings accounts, you should look for the best CD rates to make sure you are getting the maximum return on your money. There is generally a correlation between savings and CD rates – the banks that offer some of the highest savings rates also offer some of the highest CD rates.
What’s unique about certificates of deposit is that they have a term, or duration. You must keep your money in a CD for its entire duration. If you withdraw early, you will most likely have to pay an early withdrawal penalty, sometimes as high as several percentage points of your principle.
Needless to say, if you plan to put your money in a CD, make sure you will not need it before that CD matures (reaches the end of its duration). You can find CDs with a variety of terms – 1, 3, 6, 9 months and 1, 2, 3, 5 years are the most common. Choose a term most appropriate for your particular situation.
There are a few other factors to consider when looking for the best CDs, which I go over below. But finding the best CD rates and picking an appropriate term should be your main priorities.
Other Things to Consider
Before putting your money in a CD, consider the following factors in addition to finding the best CD rates and picking an appropriate CD term:
- Minimum Deposit: most (but not all) CDs have a minimum deposit requirement. Some are as low as $500, others are as high as $25,000. Depending on how much money you plan to put in the CD, you may not be eligible for some of the accounts listed above.
- Early Withdrawal Penalty: the vast majority of CDs have an early withdrawal penalty. Sometimes it’s a set dollar amount, other times it may be a certain amount of interest or even a percentage of your principle. It’s a good idea to know the early withdrawal penalty in case you absolutely have to withdraw your money.
- Auto-Renewal: many banks will automatically rollover your money into another CD with the same term if you don’t withdraw it within a certain time frame. If you miss that window, you will have to wait out another term. This can be a real problem if you need the money after the CD expires, so know when your maturity date is coming up and whether or not your CD will be auto-renewed.
- Convenience: if your current bank offers high CD rates, then it may make sense to go with it for the sake of convenience. Internal bank transfers are always faster than bank-to-bank transfers.
- Customer Service: it’s always nice to receive quick and actually helpful support in case you have any questions or problems with your account. Read some reviews from other customers before opening a CD with a new bank.
- Account Security: since we are talking about your savings, online banking security is very important. Most banks have a set of standard security features, but glance over the details. Each bank should have a page on their website discussing the security measures that are in place to protect your information and your money.
Are CDs Your Best Option?
On a final note, before you put your money in a CD, consider if it’s really your best option. Since CDs lock your money for a specific number of months or years, I don’t think they are very appropriate for your emergency fund. Furthermore, high CD rates may seem like easy money, but CDs are not a substitute for investing. You should create an investment portfolio when savings for large, long-term goals like retirement.
I hope you find this page helpful when looking for the best CD rates. Click here to jump back to the main list of CDs.
Are you a big fan of CDs? What do you use them for? I’d love to hear what you have to say in the comments below!
Image source: 401(k) 2012