It’s always a good idea to keep some extra cash in your savings. You can do this in a regular savings account, as part of your emergency fund, or in a Certificate of Deposit, also known as a CD. In general CD rates are higher than most regular savings accounts, which makes this a good option for savings you don’t need immediately.
Find the Best Online CD Rates
Use this chart to find the best high yield CD rates. This interactive table lists some of the best CD Rates on a local, regional, and national level, including some of the best military banks, and national banks such as Chase Bank:
When to Use a CD, and When to Use a Savings Account
CDs can be a good way to invest your money at higher interest rates than you may be able to find in most online savings accounts. That increased return on your deposit comes with a small price, however. Certificates of Deposit offer higher interest rates than most savings accounts because they require you to deposit your money for a fixed amount of time. You can usually withdraw the money before the CD maturity date, but you may have to forfeit a small amount of interest to be able to access your money.
Banks offer higher rates because the guaranteed deposit timeline gives banks the assurance they can lend your money out at higher interest rates, ensuring everyone makes money on the transaction.
An online savings account is generally better if you need regular or fast access to your savings. But Certificates of Deposit work well if you don’t have an immediate need for the funds, but still want to be able to access the funds in a certain amount of time.
For example, let’s say your child will be attending college in 5 years. That may not be enough time to put the money into the stock markets, because there may not be time for your investments to rebound if the markets drop. Putting the money in a CD gives you less volatility, a fixed rate of return, and a timeline in which you can withdraw the funds.
College savings isn’t the only example when it makes sense to use a CD. Many people use them for savings after entering retirement when a fixed return in the next few years is more important than the growth most people seek in their accumulation phase of their retirement savings. Other people use CDs for large expected expenses such as replacing a roof or other home repairs, replacing a car, saving for a wedding, taking a trip, etc.
One way to effectively use Certificates of Deposit is to build a CD ladder in which you open a series of CDs with various maturity dates. This gives you higher interest rates than a savings account, and you still maintain access to some of your money each year. This is commonly used by retirees who want to avoid market volatility.
How to Open a new Certificate of Deposit
Opening one of these accounts is free and easy. Simply visit one of the banks above, and being the application process. You will need to provide your name, address, and additional information, then initiate a funds transfer. The account opening process should take approximately 15 minutes, and it may take 2-3 business days to transfer your funds, depending on the financial institution.
Choosing a Bank is About More than Just High CD Rates
If your only plan is to use your bank to park some cash in a certificate of deposit, then chasing interest rates may be your only consideration. But most bank customers use their bank for more than just one service.
We recommend reviewing the bank for other features as well, especially if you plan on using the bank for multiple accounts or services. Here are some helpful tips:
- FDIC Insurance. You should always bank with an institution that is FDIC insured, or NCUA insured if using a credit union.
- Don’t overlook credit unions. Many credit unions offer excellent services, including high-interest rates on savings and CDs, low fees, and other great benefits.
- Look for sign-up bonuses. Some banks offer a sign-up bonus worth several hundred dollars for a new account. This is often worth taking advantage of, even if the interest rate is slightly lower than you can find elsewhere. You can count the bonus as implied interest, often making the effective rate much higher than you can find at your current bank.
- Is this a full-service bank, or savings only?. Some online banks that offer high-interest rates only offer savings accounts and Certificates of Deposit. This is fine if you only want to park some cash. But some people also want a checking account. Check out this list of free online checking accounts for some great options – most of these accounts are also paired with high-interest savings accounts, making those options a great choice for many customers. One of the best current offers is the Chase Bank bonus offer worth several hundred dollars.
- Does the bank offer business accounts? This only applies if you need to open a business banking account, but it is worth noting. I’m a small business owner and I like to look for efficiencies in my money management. So knowing the options is helpful.
Consider Opening More Than One CD if You Have a Large Amount of Savings
Many people prefer to open several Certificates of Deposit, since they lock up your savings for a fixed amount of time. This gives you access to your funds on a rotating basis, and makes it easier to withdraw a small amount of money instead of having to close out the entire CD.
The FDIC (Federal Deposit Insurance Corporation) insures your savings against bank failure, up to $250,000 per account. So your money is safe.
Find online savings account interest rates. Use this link to find the best interest rates for online savings accounts in the US.