Best Certificate of Deposit Rates

When I was younger, I never understood the appeal of certificates of deposit. You put your money in a lockbox, you get a tiny little interest rate, and then after a year or two or five, you get a little bit more than you put in.

As I’ve gotten older, I’ve realized that there’s value in principal protected, interest-bearing accounts. High yield savings accounts are the best and CDs are a close second if you don’t need the cash for a minute. CDs are great because it’s principal protected, FDIC insured, and completely safe.

Once I did a little more digging, there’s more to a Certificate of Deposit than its interest rate.

Western Alliance Bank$1
5.00% APY👉 Learn More

Barclays Online CD
Member FDIC
5.00% APY3.50% APY3.75% APY👉 Learn More
at Barclays
(powered by Axos Bank)
4.75% APY2.85% APY
(18 Month)
👉 Learn More
at Nationwide
Ally Bank Logo
Ally Bank CD
Member FDIC
4.90% APY4.00% APY4.00% APY👉 Learn More
at Ally Bank
Discover Bank Logo
Discover Bank CD
Member FDIC
4.70% APY3.75% APY3.75% APY👉 Learn More
at Discover Bank
CIT Bank Logo
Member FDIC
0.30% APY0.40% APY0.50% APY👉 Learn More
at CIT Bank
Axos Bank CD
Member FDIC
0.20% APY0.20% APY0.20% APY👉 Learn More
at Axos Bank
Table of Contents
  1. How to Find a Good CD
  2. Minimum Deposits & Interest Rate Tiers
  3. Early Withdrawal Penalty
  4. Different Types of CDs
  5. Renewal Bonus

How to Find a Good CD

The math behind Certificates of Deposit is simple to understand.

The longer the CD, the higher the interest rate.

Brick and mortar banks just aren’t able to offer the same interest rates as online banks.

The general advice is to decide on a maturity period, then pick an online bank that offers it.

Here’s a typical schedule from an online bank, as of August 2023:

TermAnnual Percentage Yield (APY)
3 Month CD2.50%
6 Month CD3.50%
9 Month CD5.00%
12 Month CD4.85%
18 Month CD5.00%
36 Month CD4.25%
60 Month CD4.10%

As you can see, the longer the term, the greater the interest rate (usually).

Here’s a similar schedule from a brick and mortar bank, as of August 2023:

TermAnnual Percentage Yield (APY)
3 Month CD4.00%
6 Month CD0.03%
9 Month CD0.03%
12 Month CD0.03%
18 Month CD0.03%
36 Month CD0.03%
60 Month CD0.03%

With the exception of the 3-month CD, which I was shocked to see, it’s laughable how low these rates are.

I don’t even understand why they offer CDs anymore.

Minimum Deposits & Interest Rate Tiers

Online banks almost always a minimum deposit of $1 and the interest rate applies to small CDs as well as larger ones. Some online banks will have tiers but the lowest ones are typically very good anyway.

Brick and mortar banks will change the interest rate based on how much you deposit. The tiers are often in the thousands of dollars to get better interest rates.

For example, here are the interest rate tiers for a 60-month CD (this was back in Feb 2018 and meant to illustrate how the rate scales up with balance):

  • $0 – $9,999.99 – 0.60% APY
  • $10K – $24,999.99 – 0.80% APY
  • $25K – $49,999.99 – 0.80% APY
  • $50K – $99,999.99 – 0.80% APY
  • $100K – $249,999.99 – 0.85% APY
  • $250K+ – 0.85% APY

Barclays has a 60-Month CD with a 3.75% APY, no minimums to get that highest tier.

A 36-month CD at Ally Bank is an example of an online bank with tiers (they no longer offer tiers but this is what they were back in March 2018):

  • $0 – $4,999.99 – 2.6% APY
  • $5K – $24,999.99 – 2.70% APY
  • $25K – $49,999.99 – 2.75% APY

Early Withdrawal Penalty

There is one feature that often differs between banks, other than interest rates – the early withdrawal penalty.

You’d think that there wouldn’t be many variations among banks on the early withdrawal penalty – but there is.

The early withdrawal penalty is assessed if you close your CD before its maturity date. You always have the option to withdraw your funds and close the entire CD, you simply surrender some or all of your accrued interest.

The penalty varies based on the length of the CD.

Ally Bank has the lowest early withdrawal penalties:

  • 24 months or less: 60 days of interest
  • 25 months – 36 months: 90 days of interest
  • 37 months – 48 months: 120 days of interest
  • 49 months or longer: 150 days of interest

Discover Bank has a more typical early withdrawal penalty schedule at online banks:

  • 11 months or less: 3 months of interest
  • 1 year to < 4 years: 6 months of interest
  • 4 years to < 5 years: 9 months of interest
  • 5 years to < 7 years: 18 months of interest
  • 7 to 10 years: 24 months of interest

Here’s a brick and mortar schedule, from Bank of America:

  • 90 days or less: greater of all interest earned or 7 days of interest
  • 90 days up to 12 months: 90 days of interest
  • 12 months – 60 months: 180 days of interest
  • 60 months or longer: 365 days of interest

Different Types of CDs

Up until now, you’ve seen the most basic CD – you deposit a sum, it accrues interest until maturity, then you get it all back.

There are banks with CDs that have extra features.

Ally Bank has led the way with the variety of CDs they offer:

  • High Yield CD – This is their name for the standard CD.
  • Raise Your Rate CD – If you dislike CD rates going up when you’re locked in, this 24-month or 48-month CD has a competitive interest rate that can bump up (once for a 2-year, twice for a 4-year) if the rate increases.
  • No Penalty CD – This CD has no early withdrawal penalty, but it’s usually an odd maturity (now 11 months) and a slightly lower interest rate.

Renewal Bonus

If it feels like Ally Bank gets a lot of love in this post, it’s because I use them and they have some of the most innovative deposit products in the CD space.

One of those innovations is what’s known as a “Loyalty Reward.”

If you renew a CD at Ally Bank, they give your interest rate a little bump. As of February 2018, that bump is only 0.05% APY:

When you renew, you take whatever the prevailing interest rate and add 0.05% APY. In previous years, when interest rates were higher, I saw Loyalty Rewards as high as 0.50% APY.

You now have a solid understanding of the lay of the land when it comes to certificates of deposit!

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