The 5 Best High Yield CDs
Savers are having a tough time. Interest rates are low, and that means yields on cash are low, too. The term "high yield" doesn't have the same meaning that it had before the financial crisis of 2008, but that shouldn't stop you from trying to get the best possible deal when it comes to your time deposit accounts.
What Should You Look for in a CD?
It's not just about yield (although that is a major concern). Here are some of the items you should consider as you look for a CD.
Length of Term
How long will your money be locked up? While you can get a higher yield if you choose a longer term, it's important to remember that if you try to get your money before the CD matures, you will pay a penalty. On top of that, if yields rise while your money is locked up, you can't take advantage of the increase.
Some CDs require a minimum deposit for you to take advantage of the yields. While some minimums are as low as $500, others require as much as $10,000 or even $25,000 to get the best return. If you don't have a large amount of money, or if you are looking to create a CD ladder, it might make sense to look for a CD that offers a relatively high yield with a minimum deposit of $1,500 or less.
How Interest Is Compounded
Look for a CD that compounds your interest. This means that you earn interest on your interest. Each time your interest is compounded, it is added to your CD total, and begins earning interest along with the principal. Some CDs compound your interest daily, which provides you the best earning potential. Others compound interest monthly, quarterly, and annually.
Other Features and Perks
You should also look at other features and perks offered by high yield CDs. Some offer you the opportunity to "bump up" your rate one time during the course of the maturity, allowing you to benefit if yields rise. Others are "no penalty" CDs that allow you to withdraw money before the maturity without incurring a penalty. You have to read the fine print, though, since many of these types of CDs come with lower yields to make up for the flexibility.
Consider your situation and what works best for your finances as you consider what CD might work for you. Choose a term and double-check the minimum deposit amount. Also, be aware of other issues that might impact your eligibility for the advertised yield. Sometimes the rate you see advertised is not the yield you end up getting.
Below are five great high yield CDs to consider. All of the CDs listed below are at properly insured financial institutions, and you can check with the financial institution for different maturities and other high yield products. As always, though, read the fine print before you commit to a CD account.
1. Ally Bank
In October 2012, MONEY Magazine named Ally the "Best Online Bank," and there's a reason for that. Ally's one-year CD has an APY of 0.94%, compounded daily. You don't need a minimum to open this CD, and you can arrange an automatic renewal when the CD matures. You can also get an APY of 1.59% (also compounded daily) if you choose a five-year maturity.
2. Nationwide Bank
When most of us think of Nationwide, we think of an insurance company. However, there is a bank, and it offers reasonable customer service and features competitive CD products. The 12-month CD offers a yield of 1.00%, and there is no minimum deposit. The five-year CD offers an average-beating 1.80% yield on deposits of between $0 and $9,999.99. Rates are even more attractive if you have a jumbo CD with $100,000 or more. Rates at Nationwide Bank are compounded on a daily basis.
3. OneWest Bank, FSB
OneWest Bank has a five-star rating on Bankrate, which means that it's probably a solid choice. The rates are competitive. There is a $1,000 minimum on the CDs. Rates are compounded daily on the OneWest CDs.
4. Bank of Internet USA
This is a lesser-known bank that provides competitive rates, thanks to its low overhead. The one-year CD currently has an APY of 0.55% with a $1,000 minimum deposit. If you can afford to have your money locked up for five years, there is a very attractive yield of 1.35%. All of the interest is compounded daily, so you receive maximum earnings on your money.
EverBank is an increasingly popular choice for serious savers. The CD account comes with no maintenance fees, but you do need a minimum deposit of $1,500. There is a yield of 0.66% on EverBank's one-year CD, and a 1.94% yield on EverBank's 60-month CD. Both of these rates are fairly competitive. EverBank often receives high marks for customer service. Like many of the other banks on this list, EverBank compounds its interest daily. Unlike the other accounts (check, savings, and money market) at EverBank, which come with maintenance fees and other fine print issues, the CDs offered are straightforward and hassle-free.
Honorable Mention: USAA
Another popular financial institution is USAA. You do need a minimum deposit of $1,000 in order to open a CD at USAA. The one-year CD offers an APY of 0.71%, and the five-year CD provides a yield of 1.06%. One of the hallmarks of USAA is the customer service and the ease of banking. Interest is compounded monthly, though, rather than daily.
Right now, you are unlikely to find a cash account that pays a truly high yield. You are probably going to have a hard time finding an account that will keep pace with inflation. But if you want to make the best of a difficult savings situation, these six institutions offer decent CD options.