Here's How Much You'll Earn With CDs at 5.00% APY -- Instead of Big Bank Bonuses

Getting "free money" to open a new bank account sounds fun. But some big banks are offering such paltry APYs on savings accounts that their bonuses aren't worth the hassle. Especially now, when the best CD rates are at 5.00% APY (or more) for a 1-year CD, your money can often grow faster by choosing the right CD, instead of a one-time bank bonus.

Here are a few recently announced savings account bonuses from major banks that are not as generous as they appear.

TD Bank ($200 savings account bonus)

TD Bank is offering a $200 savings account bonus through June 30, 2024. You have to deposit $10,000 into a TD Simple Savings or TD Signature Savings account, and leave the money deposited for at least 110 days after account opening.

Here's the problem: TD Bank's savings account APYs are quite low. The TD Simple Savings account pays only 0.02% APY. The higher-level TD Signature Savings account pays (at most) 2.00% APY for balances of $10,000 and up -- and that's if you get a higher relationship "bump rate" for having a linked TD Bank account, like a checking account or credit card.

How much you'd earn in one year with a TD Bank savings account

Let's say you get the TD Signature Savings account and you qualify for the best 2.00% APY "relationship bump rate" for your $10,000 balance. You deposit $10,000 into your 2.00% APY account on Day One of opening your account. After 180 days, you receive your $200 bonus.

After six months (including the bonus), your balance would be $10,299.50. After twelve months (one year), your balance would be $10,401.99. So for one year, including the bonus, your effective APY would be 4.02%. That's not bad! But the best savings accounts and CDs are even better.

What you'd earn with a 5.00% APY 1-year CD

If you put $10,000 into a 1-year CD earning 5.00% APY, after twelve months you'd have $10,500. This is $98.01 more than you'd get from even the best TD Bank savings account.

U.S. Bank ($200 savings account bonus)

U.S. Bank is another big national bank that is offering a savings account bonus for new customers. If you open a new U.S. Bank Standard Savings Account by June 27, 2024, and deposit $15,000 into it by July 17, 2024, you can get a $200 bonus. (You also have to maintain a $15,000 minimum total balance in the account until Oct. 31, 2024; at least 3.5 months.)

Here's the catch: U.S. Bank Standard Savings Account APYs are puny -- only 0.01% (as of 3/24/2023) for all balances. That $200 bonus is the only money you're going to get from U.S. Bank.

How much you'd earn in one year with a U.S. Bank Standard Savings Account

Let's say you've got an extra $10,000 and you're willing to jump through the hoops to qualify for this $200 bonus. Let's say you leave the $10,000 in the account for 3.5 months at 0.01% APY and then immediately receive the $200 bonus.

After 3.5 months, you'd have earned $0.29 of interest and the $200 bonus would boost your account balance to $10,200.29. After another 8.5 months, your account balance would be $10,201.01. So after one year, including the bonus, you'd have earned $201.01 of interest. Your effective APY would be 2.01%. This is worse than the TD Bank offer, and much worse than any of the best CDs, savings accounts, or money market accounts.

What you'd earn with a 5.00% APY 1-year CD

If you put $15,000 into a 1-year CD earning 5.00% APY, after twelve months you'd have $15,750. This is $548.99 more than you'd get from U.S. Bank.

Wells Fargo ($525 savings account bonus)

Wells Fargo is offering a new savings account bonus of $525 if you open a new savings account by June 25, 2024 -- but you have to deposit at least $25,000, and maintain that $25,000 minimum balance for at least 90 days.

$525 of free money might sound enticing, but this bank bonus is not really a good deal. That's because even the top-paying Wells Fargo savings account (Wells Fargo Platinum Savings) pays 0.26% APY on a $25,000 balance (and that's with a "relationship rate" for having a linked Wells Fargo checking account).

How much you'd earn in one year with a Wells Fargo Platinum Savings account

Let's say you decide to ignore my warnings and go earn this $525 bonus. You leave $25,000 in a 0.26% APY Wells Fargo Platinum Savings account for three months, and then immediately receive the $525 bonus. After three months, plus the bonus, your account balance is now $25,541.23. After nine more months, your balance has grown to $25,591.02.

You've earned a total of $591.02 of interest (including the bonus), for an effective APY of 2.36%. Still better than U.S. Bank, but worse than TD Bank.

What you'd earn with a 5.00% APY 1-year CD

If you put $25,000 into a 1-year CD earning 5.00% APY, after twelve months you'd have $26,250. This is $658.98 more than you'd get from Wells Fargo.

Bottom line

All of these big bank savings account bonuses will make your money grow slower than the best CDs and savings accounts. Don't get snookered by a savings account bonus that traps your money in a near-zero interest account. Go for a 5.00% APY (or higher) CD instead.