Best CD rates | Certificate of Deposit rates

Certificates of deposit (often simply called CDs), by definition are time deposits. You give your money to the bank and then promise not to touch it for a specific length of time. In general, the longer you agree to let the bank keep your money via a CD investment, the higher the interest rate you will receive.

If certificates of deposit offer higher returns than a savings account, then why doesn't everybody use them? The primary reason is that a CD investment is less liquid than a savings account in that you can't just move money in and out without penalty as you can in a savings account. You can take your money out of a CD before it “matures,” but you are docked interest when you do. In fact, it is typical for a bank to penalize the interest amount even if it hasn't been earned (meaning you could lose part of your principal if you close your CD early).

Anatomy of a CD

I was fortunate to win a $1,000 6-month certificate of deposit from ING Direct recently. (I never win anything!) Looking at it might be instructive:

Reviewing this screenshot, you can see that a certificate of deposit has an initial value (in this case, $1,000), an interest rate (3.50%), and a term (6 months). In other words, this is very much like a loan that I am making to the bank.

You can also see that the bank has an “Early Redemption Policy” that states that I would sacrifice three months' interest if I chose to redeem this CD early, whether the interest has been earned or not. Because I have held the CD less than a month, I would actually sacrifice part of my principal if I were to close the account now.

When this CD investment matures on April 9th, I will have $1,017.28. Obviously $17.28 isn't a huge return, but it's important to remember that interest rates are low right now. (Also consider that if my $10,000 emergency fund were all in CDs, I would earn $172.80 in six months.)

Another important difference to be aware of is that, unlike a savings account, a certificate of deposit ends after a set amount of time. What happens at the end of the term depends on the arrangements you have (or have not) made with your bank. (I explain this further below.)

CD Tips and Tricks

A certificate of deposit is a great way to put your savings on steroids, so to speak, but there are ways to make them even better. Here are a few tips and tricks that can help you get the most out of your investment.

Use CDs to beat falling interest rates. When the Federal Reserve cuts short-term interest rates, you feel the pinch in your savings account. Certificates of deposit are a great way to buy yourself “protection.”

When you see a rate drop coming, open another CD. For example, the Federal Reserve just cut short-term rates another 0.50 percent last week. I would be shocked if banks didn't follow suit, lowering the interest on their savings accounts. ING Direct could go as low as 2.25 percent.

When you see an interest drop coming, take some money from your savings account and throw it into a 6- or 12-month certificate of deposit, locking in the higher rate. (My web research hasn't revealed what causes CD rates to move, but they do not move in lockstep with savings accounts.)

Climb the CD investment ladder. Just as you might use dollar-cost averaging to profit from fluctuations in the stock market, you can use a “CD ladder” to profit from fluctuations in interest rates.

Say you have $5,000 to invest. To build a CD ladder, you would invest the money in CDs with staggered maturation dates:

  • $1,000 in a one-year CD
  • $1,000 in a two-year CD
  • $1,000 in a three-year CD
  • $1,000 in a four-year CD
  • $1,000 in a five-year CD

As each CD matures, you immediately invest your money in a new five-year CD, effectively maintaining the one-year stagger, or ladder. You won't earn the best possible rate of return, but you will earn a good one, and your income will be relatively constant. The CD ladder is also a form of diversification: you're not betting all your money on one interest rate.

Protect yourself with parallel CDs. One of the biggest risks to your investment in a certificate of deposit is the need for early withdrawal. What if something happens and you need to pull the money out? As we've seen, this can be expensive. Nickel at Five Cent Nickel suggests mitigating your risk with parallel certificates of deposit.

Again, assume have $5,000 that you'd like to put into CDs. Instead of opening a single certificate of deposit for the full amount, consider opening multiple CDs. You might open three CDs at once, for example: two $1,000 CDs and one $3,000 CD.

This gives you a buffer in case you need to get at the money early. If you find you need $500, you can break a single $1,000 CD and the rest of your money is safe from penalty.

Related >> Beginners' Guide to Investing

Beware of auto-renewals. Nicole wrote last week because she was surprised to find that her certificate of deposit at Countrywide had automatically renewed at the maturation date. Many (most?) banks will do this unless you instruct them not to.

If you know you're ready to pull your money out of a certificate of deposit, be sure to contact your bank to find out the proper procedure for doing so. Nicole found herself locked into another twelve month CD when she needed the money now. If she broke the contract, she would be forced to sacrifice 180 days interest, whether earned or not.

(Note that Nicole's story had a semi-happy resolution. She knows to speak up when something seems wrong. Countrywide wouldn't let her out of the CD investment entirely, but “I was able to negotiate a compromise to transfer the money to a 3-month CD, rather than the 12 month CD. Although the interest rate is lower, I will be out in 3 months, which isn't too bad.”)

Shop around. As with any financial decision, it pays to shop around for CD rates. You may find that your local bank actually offers a better deal on certificates of deposit than the online banks.

For example, my local credit union only offers 0.35% on its regular savings account, but its CD rates are competitive with (and sometimes higher than) ING Direct. Since I keep my checking account at the credit union, it might make sense for me to hold my CDs there. (In this case, however, they're not high enough to make me switch; I'd rather track everything in one place at ING.)

Here's my list of current CD rates from online banks.

CDs in Practice

I'm new to the certificate of deposit, but I can already see some uses for it. My $10,000 emergency fund, for example, is currently earning 2.75%. I may instead create a series of parallel CDs, as described above.

Also, I'm saving for my Mini Cooper. That money is also earning 2.75%. I'm nowhere close to buying the car, though, so I might as well put it into a certificate of deposit, too.

Though certificates of deposit are new to me, I'm sure that most of you have been using them for years. What tips and tricks can you offer? Do you have favorite sources for CD investments? How do you decide which money to keep there and which to keep in a savings account?

Identifying the Best CD Rates

It is important to think through how best to use a certificate of deposit in your overall financial plan, but it starts with understanding your goals and how a CD can help you reach them. Interest rates change constantly, so having up-to-date rate information is critical to identifying the best CD rates and terms to make the most of your investment. We have made the whole process easier in a convenient page that is updated weekly with the most current interest rates.

Different strategies can help you capitalize on fluctuating interest rates too.
A CD ladder can help you maintain a relatively constant income no matter how current CD rates change. A parallel CD strategy can help you maintain some accessibility to your funds during the term. Richard Barrington's post can help you understand how to find the right CD but do shop for the highest CD rates and terms regularly to maximize your return. Bookmark this page as well so you can easily come back to our table to check rates and terms as often as you want.

Current Certificate of Deposit Rates

An online account is arguably one of the most convenient ways to manage CDs and, generally speaking, online banks offer higher rates than traditional brick-and-mortar institutions. The following listings of online banks are updated weekly too, and a little more information about each bank is given next to each listing as well. Credit unions and savings associations are also sources of CDs and other deposit accounts.

CD Basics

A certificate of deposit, or CD, is a deposit account that is generally considered a very low-risk investment. You might also hear it described as a time deposit because it is not a liquid asset that can be accessed on demand. Instead, the amounts deposited into a CD are expected to remain untouched for a specific period of time, which is the term of the CD. In exchange, the bank will pay you a fixed rate of interest.
Example investment: You put $10,000 in a 5-year certificate of deposit at an interest rate of 1.75%. At the end of five years, with interest compounded daily, you would have $10,914.

Early withdrawal penalty – The full value of the CD (your principal plus the interest earned) is accessible when the term has been reached; however, there is usually a penalty if you withdraw your funds before the end of the term. This means that the bank will keep a portion of the interest earned, which could also cut into the original principal balance if the CD has not accrued enough interest to satisfy the entire penalty yet.

For example, if a depositor wishes to close a one-year CD account after two months but the bank's policy states that an early withdrawal penalty equal to three months' interest would be due in that event, then the bank will dip into the depositor's principal balance to make up for the shortfall between the interest earned and the penalty. Early withdrawal penalties vary from bank to bank, and this is another important item to consider as you shop for the best CD rates and open your new account.

Fixed interest rates – Even though interest rates change regularly, banks usually offer a fixed interest rate that doesn't fluctuate, allowing you to lock in that particular rate for the entire term of your CD. Banks are willing to fix the interest rate, which is generally higher for certificates of deposit than for most savings accounts, because the funds remain on deposit with the bank untouched for that specific period of time. (In general, the longer the term, the higher the interest rate for a CD.)

FDIC insurance – The Federal Deposit Insurance Corporation insures most certificates of deposit so that the balance of your CD will be paid to you even if the banking institution becomes insolvent for some reason. The standard deposit insurance coverage limit is $250,000 per depositor, but it is important to verify the amount of FDIC insurance that applies to the particular CD accounts you open.

High Interest CDs that Can Double Your Interest Income

According to the FDIC, five-year CD rates (certificates of deposit or CDs) are currently averaging just 0.75 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:

  • iGOBanking. Forget the awkward name and focus on the rate: Annual percentage yield (APY) is 0.35 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 FDIC data. The minimum deposit is just $1,000, so the iGOBanking CD is readily accessible. The penalty for early withdrawal is 12 months now. (Rate as of July 5, 2016.)
  • 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 1.76 percent APY on its 5-year CD, it seems to be living up to that pledge. (Rate as of July 5, 2016.) 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 to open 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 1.95 percent APY for balances between $0 and $9,999.99 and a minimum of $500 to open. That APY bumps up to 2.00 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. (Rates as of July 5, 2016.)
  • Barclays Bank. Barclays is an international banking powerhouse, and it offers a very competitive five-year CD with a 2.65 percent APY. This rate applies to its online CD, which has the added advantages of having no minimum balance requirement and the penalty for early withdrawals is 180 days. (Rate as of 05 March 2018.)
  • GS Bank. GS Bank's five-year CD has a 2.00 percent APY and a user-friendly $500 minimum deposit to open. 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. (Rate as of July 5, 2016.)
  • BBVA Compass. Though most of these highest-yielding CDs are found at online banks, BBVA Compass also offers a traditional, branch-based alternative with 716 locations. The account minimum is just $500, and the rates may reach as high as 2.00 percent APY for a four-year term, depending on which branch location you visit. Rate collected within: Birmingham, AL: 0.50%(Rate as of July 5, 2016.)
  • Ally Bank. One of the leaders in online banking, Ally has built itself up to more than $40 billion in deposits. The 1.65 percent APY on its five-year CD is well over twice the national average, but there is a 150-day early-withdrawal penalty. Still this CD is an excellent choice even if you think that rates might rise within the next five years. (Rate as of July 5, 2016.)
  • 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 1.80 percent APY and a $2,500 minimum deposit. The early withdrawal penalty is equal to 180 days of interest. (Rate as of July 5, 2016.)
  • 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 1.85 percent with a $2,500 minimum deposit to open and an early withdrawal penalty equal to what can be up to 18 months of interest. (Rate as of July 5, 2016.)

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.

Have you been able to find CD rates that rival these? If so, please add a comment below. Don't forget to include the details: name of the bank, state, rate, when you opened the account with this rate, and whether you can open the account online or must appear in person.

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Cameron F.
Cameron F.
12 years ago

Each time the feds cut rates, I keep being tempted to move some of my savings account into CDs. Then I remember that, in theory, that’s an emergency account, and that CDs aren’t sufficiently liquid for emergencies and I resist.

DebtKid
DebtKid
12 years ago

I agree with Cameron…as tempting as a slightly higher rate from a CD is, for emergency account purposes I don’t know if it’s worth the loss in liquidity.

Moxiequz
Moxiequz
12 years ago

Cameron – you can set up a staggered CD system to compensate for that. In addition to a one month liquid emergency fund (to cover you your first month into a job loss or some other emergency) you would have a CD maturing each month of the year. Each CD would contain one month worth of expenses and mature shortly before the beginning of the next month. For example a $2000 dollar CD to cover your Feb expenses which matures on Jan 26th or so (to give you time to transfer the money into a more liquid account). I have… Read more »

Ed
Ed
12 years ago

While ING’s interest rate drop isn’t instant, it is pretty darn close. I like ING and use them, but I have noticed that they are about the quickest to drop when the fed does.

@Cameron:
Do a CD ladder so you can have access to cash every month or two (depending on the ladder you set up).

Cameron F.
Cameron F.
12 years ago

The staggered CDs are a clever solution, but doesn’t that approach assume that the only potential emergency is being out of work?

Josh
Josh
12 years ago

For whatever reason EmigrantDirect does not drop as fast (or maybe just not as much) as ING. After the fed cut last week they did drop but only from 4.55% to the current 4.3%. Just a friendly FYI.

Girls Just Wanna Have Funds
Girls Just Wanna Have Funds
12 years ago

This is a fantastic idea, I didnt even think about that. Still, Ive always been wary of CDs because of the penalties incurred if you need your money in a hurry, ie emergency. ING has disappointed me but hopefully when I check out bank deals, they’ll have something in the works. Unfortunately with all the rates going down though, it looks bleak. But the good idea as you’ve suggested is to lock it in a CD so you’ll be afloat even while rates go down.

Moxiequz
Moxiequz
12 years ago

“The staggered CDs are a clever solution, but doesn’t that approach assume that the only potential emergency is being out of work?” Good point. I mentioned keeping one month’s expenses in the liquid account but you can keep more there if that’s more comfortable or if it’s likely your emergency might be an expensive house or car repair. It’s a trade-off. In general the more liquid your funds the less they’ll earn in fixed interest. So you have to weigh the likelyhood that you’ll encounter a *major* emergency (one that would exceed one month of living expenses) before your next… Read more »

Anne
Anne
12 years ago

IMO, an emergency fund is money you plan on not spending. So it doesn’t matter if it’s in CDs. In the worst-case, emergency scenario, you liquidate the CDs and pay the early withdrawal penalties, which usually means forfeiting a few months’ interest–not a big deal. One way to mitigate this is always to open a CD with only the minimum deposit. So if you have $10,000 to put away and the CD rate is valid on deposits as low as $1,000, open ten $1,000 CDs instead of one $10,000 CD. If you need $2,000 in a hurry, you can liquidate… Read more »

NickK
NickK
12 years ago

A decent idea – but with early-withdrawl penalties, look out! Also, you’re playing the rate game, which subjects you to interest rate risk. If you lock up your money for a year or two (or longer), it’s possible the fed funds rate could rise and drop back down again during that time – leaving you unable to take advantage of higher rates in the interim. I like having maximum flexibility with my money. Smart in some cases, but probably a wrong idea for “emergency, on-hand” cash. I like to use CDs when I have a goal in mind for my… Read more »

singlemomindebt
singlemomindebt
12 years ago

I think once my finances settle down a bit (mid to late 2009), I’m going to explore the CD idea further, and perhaps look at some other investing options as well. I have so much in flux at the moment that I don’t dare tie my money up in any way because I’m quite sure when I’m going to need it. haha, I’m afraid of commitment, where are the one month CDs!?!

Angie
Angie
12 years ago

Anne hit the nail on the head. The penalty for early withdrawal of a CD is a few months’ interest, at least at the few insitutions where I’ve ever had them. For a $1000 CD at 4% annual interest, that’d be on the order of $10. Not a big bite. We have a little bit of a CD ladder. One of my financial goals for the next several years is to beef it up considerably. I find that having that money locked in is a nice barrier against spending it. When I think about “cash on hand” for everyday expenses,… Read more »

Heidi
Heidi
12 years ago

Check out this post I wrote last week on CD laddering – that’s what’s being described here. I have several clients who do this and it works very well.

http://bankergirl.com/archives/56

GDad
GDad
12 years ago

Due to a variety of happy windfalls, I’ll be coming into a nice chunk of change in a couple of months. In order, the priorities are:

1. Pay off remaining credit card balance.
2. Put a couple kilodollars in son’s 529.
3. Pay a couple of months ahead on car loan.
4. Use what’s left to open six six-month CDs, so one matures each month. Consider this the emergency fund.

Chris
Chris
12 years ago

CD laddering is a great option, but BOA used to have a “no risk” CD that paid out at near regular CD levels, but allowed you to pull money out at any time (but in person) with no penalty.

I’ve been using one as my “savings account” for almost a year now.

Brian
Brian
12 years ago

Hi. I’m the Brian mentioned in the post. I wanted to address a few things from the comments. 1) About the emergency fund. First, my savings account is not exclusively my emergency fund. It’s my savings account. I have an emergency fund in a local bank that I’d have quicker access to than ING. 2) Also about the emergency fund. Notice what I said in my email to JD: I only have 40% of my money in CDs. Id love to have put 100% in, but I specifically did not to be on the safe side. I’m just pointing out… Read more »

Justin
Justin
12 years ago

@Chris[13]

As far as I know, that offer is still good. In fact, I just signed up for one with about 70% of my savings last week. I’m a huge advocate for using something like this, since the biggest risk of CDs – timelock – is almost completely mitigated out (the fine print states that a week’s warning MAY be required to withdraw without penalty). If one has a BoA account with a bunch of money just sitting around, there’s really almost no excuse to NOT have one of these.

Jeffeb3
Jeffeb3
12 years ago

I don’t have any CD’s but if you were in a rate “slump” with CD rates you hold greater than the current CD rates, you can often sell them if you want you money out. I only know this because a friend of mine bought some CD’s at Edward Jones, and this is the system he described. Apparently, Edward Jones does the work of selling them for you.

Mary Sue
Mary Sue
12 years ago

I’ve been using INGDirect CDs for my emergency fund. Every month I opened another one, term 6 months, because I used to have a serious ‘borrowing from myself’ problem. It’s not yet under control, but I’m working on it. I emailed and asked, ING has no limit on the number of CDs you open, and no limit on the dollar amount. So, I have a couple of $25 CDs. But they’re earing about 1.75% more than the cash in my savings account right now. I’ve stopped opening new CDs for a while, just ’cause the interest rate on the short-term… Read more »

KC
KC
12 years ago

I know some people say keep your emergency fund completely liquid in case you need it immediately, however, I believe differently. In JD’s case he has (or plans to have) $10k. If he or his wife were to lose their job then they would need this money. But they wouldn’t need it all at once. You would need it as bills came due. So you could keep part of your emergency money (maybe 20-30%) in 6 month CDs. That way, by the time you get around to needing it (if you ever do), then it would have come due and… Read more »

Dickey45
Dickey45
12 years ago

We got a CD a couple weeks ago at our local CU. The rate was 4.5% for a year. I’ve never had a CD before and didn’t realize that a rate cut could affect the rate that quickly. Our Money Market savings is at about 2.3%.

Daniel
Daniel
12 years ago

Another vote here for ladders. With regular income coming in, I keep a spare month’s expenses in checking (or more if I know there’s a big expense coming up, like the new roof), and the rest in treasury bills. They pay less than CDs, but are also exempt from state and local taxes. They are incredibly easy to purchase through Treasury Direct, in 1-, 3-, and 6-month bills, $1K and up. I switched to treasuries when I got annoyed that my bank wouldn’t let me close a money market without charging fees (then waiving them when I called to complain),… Read more »

Aleks
Aleks
12 years ago

Is a CD the same thing as a GIC? I keep somewhere between $3000-100000 in my savings account for emergencies and larger expenses. I don’t worry about ear-marking money, I just dump it all in the one account and take it out as needed. When my savings balance gets too high, I put it in something longer term. I used to use ING GICs for this, but the rate of return is not that great. As they’ve matured I’ve moved my GICs into a bond fund with the same company that manages my RRSP and long-term investments. Historically, the return… Read more »

Christine
Christine
12 years ago

Another thing to be aware of when using short term CDs for emergency money is that you don’t loose that much if you have to cash them in before their maturity. Be sure to ask what the penalty is for early withdrawal. When I had less money than I do now I laddered some emergency money in CDs to get a little higher interest. I was pretty sure I wouldn’t need the money but not absolutely sure. As things happen when you are living on a small sum, my living expenses ended up being a little higher than I expected.… Read more »

Sarah
Sarah
12 years ago

I can understand the argument against CD’s and the early withdrawal penalties, but I look at it this way: It’s not a REAL emergency if it’s not worth forfeiting the interest. I keep a lot of my emergency money in CD’s because it keeps me honest and removes temptation. I can’t just “borrow” $50 here and $30 there when I come up short at the end of the month. And, in the event of a true emergency, I won’t care about forfeiting interest because it will be a true emergency. Make sense?

Hopkinton MA Real Estate
Hopkinton MA Real Estate
12 years ago

The difference in rates between a CD and a money market fund are really not great enough to want to have the money tied up for an extended period. Unless this is money that you have no need to utilize for a generous period of time why would you do it. The spreads used to be greater and it made more sense….I don’t see that today. There are a few places where you can get a really good interest rate on a money market account. Eloan and Countrywide come to mind.

Dave
Dave
12 years ago

re: CD ladders – some talked about setting them up to be available shortly before the end of a month, in case you needed the funds. This is a great idea but it actually doesn’t work very well in practice, at least for the shorter-term CDs. They may be marketed as 3 or 6 month CDs, but they are actually 90 or 180 days. So if you opened a 90 day CD on Jan. 1 this year, it’d come due on Mar. 30, and when renewed, the new date would be Jun 29, and so forth. It doesn’t take many… Read more »

Dave
Dave
12 years ago

I must say that I am quite upset with INGs rate drop on savings accounts. I realize that other banks are doing this as well, just not quite as much as ING. That being said I did look into the CDs on INGs website. It appears that all of ING’s CD rates are 3.65% which is the exact same as their savings rate. Now why the hell would anyone in their right mind take out a CD and get locked into a 1,2, 5 year commitment when you can put your money into a savings account and have access to… Read more »

Anne
Anne
12 years ago

@Dave @ Accidental FIRE: Well, as this post points out, the CD interest rate is fixed for the term of the CD, while the savings account rate can drop at any time.

Ed
Ed
12 years ago

@Dave @ Accidental FIRE,

I expect ING to be dropping their savings interest anytime up to 0.4% to match what the fed did. The CD rate will probably stay the same or drop a hair and that will be the difference in earnings between the two.

Brett
Brett
12 years ago

Working for a large bank, I’ve suggested that to several customers who still continue to keep large sums in a savings account. Most give me the the same response about how they’ll come in “next week” to set one up, yet I’ve seen the rates for our CDs drop every day or two since the fed cut interest rates. Gah! It’s so frustrating to see people with more money than they know what to do with not take simple advice because they’re more worried about me trying to “sell” them something. If you want to make the most out of… Read more »

Frugal Dad
Frugal Dad
12 years ago

Wish I had locked in a higher rate sooner! I’m always concerned with the early cash-in fees associated with CDs, when I’m probably losing out more than that in a much lower interest rate in passbook savings accounts.

Heather
Heather
12 years ago

a money hack a friend taught me for her emergency savings, that you might consider: Open three three-month CDs, each with a third of your emergency fund. Have each one roll over on the same day of the month, for three months in a row. That way you have your savings secure, earning a higher interest rate than a savings account, but still easier to get to than a longer term CD. I did this with my emergency savings at my credit union, and when I had to cash them out, I was only penalized on 3 months interest on… Read more »

Brian
Brian
12 years ago

Frugal Dad:

What if the fees associated with CDs are lower than what a rate drop would have cost you? I’m willing to bet… CDs win.

Cinnamon J. Scudworth
Cinnamon J. Scudworth
12 years ago

It seems like a lot more micromanagement for not much (if any) more interest than you would get from a decent money market fund. It’s not FDIC insured, but MMF rates decline more slowly than bank savings accounts, just like CDs, precisely because their underlying holdings are CDs and other fixed-term debt instruments.

Early Retirement Extreme
Early Retirement Extreme
12 years ago

Erhm, doesn’t the CD rates drop with the fed rate as well? While it might have been smart to lock in a CD rate when the fed drops their rate, the opposite holds, when the fed raises their rate. If chasing a few extra basis points (compared to a savings account) my vote is on the money market fund as well.

escapee
escapee
12 years ago

I opened an ING CD in Nov when I had about 12k in my ING direct savings account. When it matures I’ll have earned $236 in interest. That’s free money!

One word of caution- remember you can’t touch the money before maturation so make sure you have enough extra in your emergency fund. ING charges a 3 months interest penalty for early withdrawals, so if you withdrew too early (ie before 3 months) you could actually *lose* money and end up w/ less than you started with!

elisabeth
elisabeth
12 years ago

one of the banks I work with has CDs to which you can add money — so if rates go down, I can put funds into an existing CD with a higher rate instead of the rate that is current. Also, if you watch for “specials,” you can often get some very nice rates even for short term funds, (one back here ran a special for its anniversary that was more than a point above rates at other banks at that time span..). CDs are more of a “snowflake” than a snowball in terms of savings, but they do add… Read more »

SJ
SJ
12 years ago

CDs work really well for me as an emergency fund – we have about 12K in CDs, plus a “liquid” emergency fund with on average $7000 in it – as other posters have said, I find myself using that fund to cover larger type expenses that come up here and there over the year, but the CDs keep me from touching the larger pot unless it was a TRUE emergency, and then it would be worth forfeiting a few months of interest. I use a credit union, and they constantly have some sort of promotion to get a higher rate… Read more »

MITBeta
MITBeta
12 years ago

I use CDs for my emergency fund as well. But unlike most here, I have them laddered in 1-5 YEAR CDs. So on the 5 yr CD I have a 5.3% interest rate. I don’t know what the penalty is, but I’m not planned to EVER have to use that money. If I do, I’ll eat the penalty and be glad for it.

The problem now is that I’m wondering what to do the next time a CD matures given that rates are so low. I don’t want to lock in 3% for 5 years…

Tom
Tom
12 years ago

Has anyone invested in Intervest Bank before? They show up a lot with great rates but I never hear anything about them.

lorax
lorax
12 years ago

Careful with those high-rate banks. Many are based offshore and aren’t regulated by US laws.

BTW: If you have many short term CDs that are automatically rolling over, you might just look into something like Vanguard Prime money market fund. They do the CD investing for you. There’s a downside risk, if rates fall, but CDs have a downside risk if rates rise too.

Prime MM is yielding around 4.3%.

Pat with SPI
Pat with SPI
11 years ago

I really have to start looking at CDs because I use paypal to hold my emergency funds, and it used to be above 5% interest, but now it’s almost below 2%.

This is a perfect and very timely post. Thanks J.D!

Robert
Robert
11 years ago

I’ve been considering setting up a series of CDs (a ladder as you refer to it) with my emergency fund. I’d like to get a rotation going where I have a 1-year CD maturing roughly every other month, and then I can gradually bump them up. Since my goal is to have an emergency fund to cover 1 year’s worth of expenses, I’m not sure I want to go with longer term CDs. If I do need to survive for a year due to a layoff, I’d rather not have to worry about breaking CDs, but simply let them expire… Read more »

Pete
Pete
11 years ago

“In fact, many (most?) banks penalize the interest amount, even if it isn’t earned (meaning you could lose part of your principle if you close your CD early).”

Dang. I’m going to avoid CDs at all costs. I would hate to lose my principles. 😉

Sam
Sam
11 years ago

We recently transferred $5000 from our ING emergency account to an ING 1 year CD to get a better return. It was super easy.

Don
Don
11 years ago

Right now, dollarsavingsdirect.com is offering 4% if you open with $1000 (but there’s no minimum balance). It’s the same bank as emigrantdirect.com, so I’m not sure exactly why the latter is only offering 2.75%. In any event I now have accounts at both and I’ve transferred to dollarsavingsdirect.com to earn as-good-as-CD rates with complete liquidity.

Sammy
Sammy
11 years ago

Saving is good! It makes me feel a little more secure.

However, savers in the USA penalized with low interest rates.

The interest rates you quote on CD’s for example–the rate of inflation is higher. The interest you earn is taxable, too.

What’s a saver to do?

Megan
Megan
11 years ago

I have to agree with Don. I have a dollar savings direct account and wouldn’t dream of losing the liquidity for a lower interest rate. Even with the recent changes in prime, the rate has stayed at 4%. JD, I’m amazed that you haven’t made a post about this new product since the rate chasing thread had such a response.

shalom
shalom
11 years ago

One thing I like about ING is that their CDs have no minimum deposit requirement, so you can open them in amounts as small or as big as you like. Our emergency fund is in a CD ladder — 12 CDs, each with a 1 year term, 1 CD maturing each month. Also at ING, if you let your CD automatically renew (or “roll over”) for a new term, they often will give you an extra .10% in interest — so, if their normal rate is 4.25% for a 1 year CD, when you roll over a CD, they give… Read more »

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