This guest post is by Richard Barrington, CFA, senior financial analyst for MoneyRates.com.
The latest cruel trick played on savers is that while mortgage rates have started to rise, bank deposit rates haven’t budged. If you want higher interest rates on your deposits, you’re going to have to do something about it yourself.
According to the FDIC, five-year CD rates (certificates of deposit or CDs) are currently averaging just 0.74 percent nationally. Fortunately though, not all CDs are created equally. Here are 10 CDs that offer at least double the interest income that today’s average account provides:
(Rates current as of September 12, 2013)
- iGOBanking. Forget the awkward name and focus on the rate: an annual percentage yield (APY) of 2.05 percent on a five-year CD. iGOBanking is the online division of Flushing Bank. Though Flushing Bank is quite small, with deposits of less than $600 million according to the most recent FDIC data, it is obviously trying to make a splash in online banking with an aggressively high rate offer and a comprehensive online presence. With a minimum deposit of just $1,000, the iGOBanking CD is readily accessible. The penalty for early withdrawal is six months, which means that if you bailed out after just one year, you’d still be ahead of the average with this CD. Sacrificing six months interest would cut your earnings for the year from roughly 2 percent to 1 percent — still a little better than that 0.74 percent national average.
- EverBank. EverBank has made a commitment to offering high interest rates by pledging to keep its CD rates in the top 5 percent of comparable products. With a 2.01 percent APY on its 5-year CD, it seems to be living up to that pledge. EverBank’s 17 branches are all in Florida, but its products are available to a national audience online, and with more than $10 billion in deposits, they have built up a fairly substantial customer base. The minimum account size is a reasonable $1,500, but the only catch is a hefty penalty for early withdrawal — equal to 900 days of interest on its five-year CD.
- Nationwide Bank. This online banking affiliate of the insurance giant offers a five-year CD with a 1.92 percent APY and a size requirement of just $500. That APY bumps up to 1.97 percent for deposits of $100,000 or more. These strong rates do require a long-term commitment, since the early withdrawal penalty is 360 days of interest.
- Barclays Bank. Barclays is an international banking powerhouse, and it offers a very competitive five-year CD with a 1.90 percent APY. This rate applies to its online CD, which has the added advantages of having no minimum balance requirement and a reasonable penalty of 180 days of interest for early withdrawals.
- GE Capital Bank. GE Capital’s five-year CD has a 1.90 percent APY and a user-friendly $500 minimum. There is a 270-day early withdrawal penalty, so make sure you are committed for at least a couple years if you choose this product.
- BBVA Compass. Though most of these highest-yielding CDs are found at online banks, BBVA Compass offers a traditional, branch-based alternative with 716 locations. The account minimum is just $500, and the rates may reach as high as 1.60 percent APY for a five-year term, depending on which branch location you visit.
- Ally Bank. One of the leaders in online banking, Ally has built itself up to more than $40 billion in deposits. The 1.50 percent APY on its five-year CD is just over twice the national average, but perhaps the most attractive feature of this product is its mild 60-day early-withdrawal penalty. That makes this CD an excellent choice if you think that rates might rise within the next five years.
- Sallie Mae. Sallie Mae is probably better known for student loans, but it also offers online deposit products, including a five-year CD with a 1.50 percent APY and a $2,500 minimum. The early withdrawal penalty is equal to 180 days of interest.
- Discover Bank. Though the Discover name is more commonly linked to credit cards, Discover Bank also has more than $40 billion in deposits. Its five-year CD rate offers an APY of 1.50 percent with a $2,500 minimum and an early withdrawal penalty equal to six months of interest.
- Doral Bank. Doral Bank is based in Puerto Rico, but it has locations in New York and Florida and some of its products are available online throughout the U.S.. Its five-year CD has a 1.49 percent APY, an accessible $500 minimum and a manageable 180-day interest penalty for early withdrawal.
The above are not necessarily the 10 highest-yielding five-year CDs in the country. They were chosen because their rates are at least twice the national average, they are available in multiple states and they have relatively user-friendly websites. You may find additional options in your area, but the points discussed above can still provide you with some framework for what criteria to consider — including rates, minimums and penalties — when choosing a CD. Happy hunting!
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