Best CD Rates for January 2019

The certificate of deposit (CD) is one of the most durable and popular banking products on the scene. It’s been a favorite option of many bank clients who are drawn to its simplicity, not to mention the attraction of earning an easy buck on their funds.

You can get dizzy sifting through the galaxy of CDs available on the U.S. market today. We’re here to help with a distillation of the best CD rates currently on offer. For those who are new to CDs or simply need a refresher, we’ll run through some of the basics, and the pros and cons of holding a CD as well.

Boiled down to its essence, the CD is an instrument for saving and growing money. The concept is very straightforward; when we put money into a CD, we basically agree to “lock up” that money in the account for a set time period. This period is called the term.

Of course, we’re not doing this to make a charitable donation to a financial institution. Money in a CD earns interest, the rate of which depends on how generous the bank is and the length of the term. All things being equal, longer terms -- because you’re agreeing to stash away your money for more time -- earn at higher rates.

Available terms, again, depend on the lender. For the most part they tend to range from three months to five years, although it’s possible to find shorter and longer terms on either side of that range.

It’s common for CDs to be fixed-rate, meaning that their interest rate is in force for the full term. There are variations on this foundational type of CD, including:

Step-up CD -- In many ways the opposite of a fixed-rate CD, the step-up’s interest rate rises according to a schedule set by the seller.

Bump-up CD -- This product is related to the step-up CD. It’s more limited, though, with the account owner holding the right to request one interest rate increase per term.

Jumbo CD -- A CD account holding $100,000 or more.

The short answer is yes, but you don’t want to. Since a CD is meant to be a full commitment of funds over the accepted term, you’ll get socked with penalties if you decide to draw from the well.

These fines are usually considerable. Here’s a sample of penalties for making an early withdrawal based on your holding period. These fees are more or less typical across the banking sector:

There is one key reason for the enduring popularity of the CD -- it pays a high interest rate compared to nearly every other mass-market banking product. This stands to reason, as it’s the most restrictive.

Savings accounts and money market accounts have limits on certain types of transfers and withdrawals, while checking accounts usually have few if any. With all three products, though, a customer has at least some access to their funds. CDs are a commitment and if you’re not fully committed, you’ll pay a steep price for even one withdrawal.

So the CD holder is the best-rewarded of the bunch. At the moment, CDs top out at an interest rate of around 3% for a five-year term. This level seems to be the province of online-only banks; they have lower costs than their traditional bricks-and-mortar rivals, and they tend to plow this savings partially into higher rates.

Online or off, that 3% is above the rate of other bank offerings. Money market accounts usually top out at just over 2%, and the most generous savings accounts come in at just under that figure. Checking accounts typically pay no interest at all, or only a token amount, because of their flexibility and ease of use.

There is no such thing as a perfect bank account. If there was, every single bank customer in America would hold a Unicorn Account and nothing else.

CDs are extremely useful in many ways, but they have their drawbacks. Before deciding to put down money to open one, it’s helpful to go through some of their advantages and disadvantages.

Advantages

• Predictability -- Assuming you’ve gone with a fixed-rate CD, you’ll know exactly how much money you’ll get from your bank, and precisely when those greenbacks will be in your possession.

• “Set it and forget it” -- Sign the requisite paperwork, slap down the money and… well, that’s basically all that’s involved in managing a CD from the account holder’s side. The next and final step is to wait until maturity to collect your interest.

• Few fees -- This is a low-maintenance product for both the customer and the lender. As such, there’s no need or inclination from the bank to smack you with fees for holding a CD account. You’ll pay little or nothing in standard fees to keep one open (assuming you don’t yield to the temptation to withdraw your money early).

• High interest rates -- see above.

Disadvantages

• Lack of flexibility -- Want the option to dip into your funds at least occasionally, or transfer some to another account? Sorry, that’s not going to happen without pain; almost always you’ll pay a very stiff penalty for the attempt.

• Rising interest rates -- A fixed-rate CD won’t be money well spent if market interest rates are on the way up -- you’ll earn at the agreed-upon rate, but other financial products tied to interest rates will see a boost in their payouts. Step-up and bump-up CDs go some way to mitigating this factor.

• Minimum opening balance -- It’s very common for CDs to require a minimum amount to open the account. This can be challenging for those on restricted budgets who might not have said amount to spare.

CDs are among the highest-yielding bank products you can find. They are a fine choice for the sort of saver who wants to earn a bit of interest, but doesn’t want to bother monitoring and managing an investment. Their safety and predictability are two huge draws.

You need the funds for this, however. That pile of cash is going to be tied up for a while, after all, oftentimes for years. An important question to ask is whether you’re close to certain you won’t be needing that $5,000 or $10,000, or however much you invest, anytime soon.

If the answer is “no,” other types of savings instruments (savings and money market accounts) might be what the doctor ordered. With those products you’ll have more scope to effect transfers and withdrawals, however you won’t make quite the interest you could with a CD.

To recap, here are the best CD rates