Keep Your Money Safe and Accessible
find the right Certificate of Deposit account for you
Are you frustrated by the meager interest your savings account is accruing? If so, you’re not alone. Fortunately, certificates of deposit (CDs) represent one of the lower risk forms of investment available from credit unions and banks.
The best certificate of deposit pays higher interest rates than a money market or savings account, which means that an extra chunk of change you’ve got floating around can make you more money. Of course, these accounts also come with some drawbacks.
For one, you’ll have to tie up your excess funds for a specified period. And if you find yourself needing to use it sooner than later? You’re going to pay for it in the form of penalties.
If you don’t anticipate needing to use these funds for six months or so, however, then a CD could help you earn more on each dollar.
Let’s take a closer look at how CDs work and what the best CD rates in 2020 are.
Best Certificate of Deposit Rates for 2020
If you have a lump of cash in your savings account and are reasonably sure you won’t need it in the immediate future, putting it in a CD could earn you more generous dividends than you’ll get with a savings account.
CD rates change, and so you’ll want to do your research. But we can give you a basic idea of how the best CD rates in 2020 are shaping up.
Discover High Yield CD
This CD will earn you 1.60 percent APR over five years with a minimum deposit of $2,500.
Marcus by Goldman Sachs High Yield CD
This CD comes with a five-year APY of 1.65 percent with a minimum deposit of $500
Ally High Yield CD
Offers 1.60 percent with no minimum deposit.
American Express High Yield CD
Offers 1.60 percent with no minimum deposit.
Offers 1.85 percent on a five-year APY with a minimum despot of $2,000
Barclays Online CD
Offers 1.85 percent with no minimum deposit.
TIAA Bank Yield Pledge CD
Pays 1.60 percent interest with a $5,000 minimum deposit
Offers 1.20 percent with a minimum deposit of $2,500
Make Your Money Work for You
When you compare CD interest rates with lower APY’s you’ll get with your average savings account, the allure of the best certificate of deposit becomes clearer. What’s more, it may surprise you that some CDs come with no minimum investment amount. So, why not start earning cash on your money today?
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Frequently Asked Questions
Learn the CD basics
How do CDs work?
Consider a CD as a form of time deposit. In other words, to get a higher rate of interest, an investor promises to keep their cash with a financial institution for a pre-determined amount of time.
In exchange, the bank or credit union agrees to pay that investor more interest than they’d get through a savings account. It’s a win-win for the investor and the bank.
Why are financial institutions willing to pay to use your money? Because a CD lets these institutions know that they can use your funds for longer-term investments, like loans, without you coming back to pull it out a week later.
Certificates of deposit come in many different forms. Credit unions and banks continue to offer new options. Once upon a time, CDs came with a fixed rate that never changed, and consumers always paid the penalty for cashing out too soon. Today, that’s not still the case.
How can you get the best CD rates?
If you decide to open a CD, you’ll want to call your bank or credit union and discuss options. Most of these organizations offer a variety of choices when it comes to CD investments, so it makes sense to explore them thoroughly.
When you contact your bank, be prepared to tell them how much you’d like to invest and for how long. The duration of your investment is known as the “term.” You’ll also want to ask about alternative CD products as well as whether early withdrawal penalties apply.
A customer service representative or banker should steer you towards the best investment for your current and long-term financial needs. The CD you choose will depend on your priorities.
Consider factors such as: how high you’d like your rates of return, how much overall flexibility you need, and other factors unique to each CD type.
For these reasons, it’s essential to shop around and not settle for the first CD offer you see. You may need to check in with several financial institutions before making a final decision.
How can you get the best certificate of deposit rates?
Remember, too, that CDs come in a variety of different account types. These account types include trusts, joint accounts, and individual retirement accounts (IRAs). So, do your research carefully before committing to a CD rate.
There’s an important caveat to this, however. Make sure you stick with FDIC-insured or NCUA-insured CDs. That way, you can rest assured your money stays protected.
If you don’t like the CD rate you get quoted, ask for a better one. If you do significant business with this credit union or bank, you may have a better chance of getting what you ask.
Once you’ve moved your funds into a CD, you’ll see a separate account on your statements or online dashboard. Use this account to monitor the money your funds will now start generating.
What are the different types of CDs?
Before signing on the line or even speaking with a banker, you’ll want to have a basic understanding of the different types of CDs available. That way, you’ll know what to ask for and look for during a conversation with your financial institution.
Types of CDs include:
- Liquid or “no penalty” CDs
- Bump-up CDs
- Step-up CDs
- Brokered CDs
- Jumbo CDs
Let’s take a deeper dive at these types and how they can earn you more money through a different certificate of deposit rates.
Liquid or “No Penalty” CDs
As the name suggests, liquid or “no penalty” CDs let you access funds early, if needed, without being subject to any withdrawal penalties. As a result, they come with the flexibility to move your finds to a higher-paying CD when opportunity knocks. This flexibility comes at a price, though.
Liquid CDs typically pay lower rates than CDs with a locked period. To bankers, this makes sense. After all, they’re taking on the risk of rising interest rates.
That said, earning less might prove worth it if you’re able to move up to a higher rate later on. So, if you feel confident that rates may rise soon, then a liquid CD represents your best option. Here’s what to know about the Federal Reserve and how interest rates work.
Going in, just make sure that you understand any restrictions related to your liquid CD. For example, some “no penalty” CDs still may place restrictions on when and how much you can access at a given time. You’ll also need to invest a more significant amount upfront with this type of CD.
With bump-up CDs, you’ll enjoy some of the perks of liquid CDs. For example, you won’t get stuck with a low-interest rate if they rise after you make your investment. Instead, you get to keep your existing account and bump up to the new, higher rate your bank offers.
That said, bump-up CDs start out paying less, like liquid CDs. These lower interest rates will fall below those of standard CDs.
If rates rise, however, you could come out ahead. If that doesn’t happen, though? Then, be prepared for your funds to stagnate or fall. Based on interest rates, you may do better with a standard CD.
It’s also important to know you may have to inform your bank in advance that you’d like to exercise your bump-up privilege. Otherwise, your financial institution may assume you want to stick with your current rate. Remember, too, that you don’t get unlimited bump-ups.
As for step-up CDs, they come with regularly scheduled interest-rate increases.
That way, you don’t risk getting locked into the rate in place at the time you bought your CD. How often can you expect to see these increases? It can be about every 10 months.
As a result, step-up CDs represent an excellent way to split the difference between the benefits associated with liquid or bump-up CDs and standard ones.
Brokered CDs provide yet another alternative, and they sometimes offer better rates. Nonetheless, you’re often still better off going straight to your credit union or bank.
So, how do brokered CDs work? Brokerage accounts sell them, which means you can buy them from a variety of issuers.
Working with a brokerage appeals to some people because you keep all of your CD accounts in one spot without having to open a bank account and rely on that bank’s CD choices.
While the freedom that comes with a brokerage is fantastic, you must know to go in that brokered CDs come with additional risks.
You’ll need to make sure that your issuer is insured by the Federal Deposit Insurance Corporation (FDIC). An independent government agency, the FDIC guarantees consumer and banking safety. For example, if an FDIC-insured bank goes under, your funds will be covered by insurance.
Just bear in mind that FDIC-insured accounts come with certain limitations, too. For example, your funds must be located in qualifying accounts, and they must fall below the maximum protected dollar limit of $250,000 per depositor per bank. Know, too, that getting out of a brokered CD early can get complicated.
Last but not least, let’s talk jumbo CDs. As the name suggests, these accounts have a very high minimum balance requirement, usually more than $100,000. Yet, they represent a safe place to put large amounts of money (up to $250,000) because of the FDIC insurance mentioned above.
What’s more, you can expect to earn lucrative amounts of interest on these accounts, especially compared to the other types of CDs on this list. In many cases, you’ll also enjoy no account opening or maintenance fees and daily compounding interest to ramp up your potential earnings.
Jumbo CDs are a fantastic way to earn more revenue without falling subject to the volatility of the market or other types of investments. They represent a vital component of an overall investment and savings plan.
What happens when are at the end of your CD term?
It’s considered mature. Then, you’ll need to decide what to do next. As your end date nears, your bank will notify you as to the options you have available.
Keep in mind that if you do nothing, your CD will be subject to automatic renewal. In other words, your funds will get reinvested into another CD. The term will stay the same.
So, for example, if you’ve got $10,000 rolled into a six-month CD that comes to term and you do nothing, then those funds will get put back into another six-month CD. That said, the interest rate could prove higher or lower than the price you previously earned.
Before your renewal date, let your bank know if you want to do something different with your money for the next go-around. You may choose to transfer the funds to your checking account or savings account. You may also switch to a different CD with a longer or shorter term.
Ultimately, you can ensure your money’s always working hard for you with the best CD rates.
What is the most common CD investing strategy?
To make CDs an active part of your savings plan, consider a CD ladder. How does it work? First, you’ll buy several CDs with different terms so that they mature at regular intervals. Then, you’ll reinvest the money into longer-term CDs as the first ones mature.
If you’ve got $6,000 in your savings, for example, you might put $1,000 in each of six CDs with maturity dates set a year apart. Then, when the one-year CD term comes up, you’d move that money into a new six-year CD, which would mature the year after your initial six-year CD.
By staggering term dates like this, you can continue investing in CDs indefinitely until you need the cash in any given year. In essence, CD ladders let you invest your money without locking it all up in one low-paying CD. They can also help you avoid cashing out early and paying penalties.
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