One Year CD Rates from Online Banks
Certificates of deposit (CD) rates from online banks are often above average if you are willing to open and manage your account using the Internet. Most online banks offer an online application and money can be transferred to fund the CD via an electronic transfer, check, wire, or credit card. You can view a financial snapshot of any online bank by clicking on its name and then the Financial Details tab.
December 8, 2013
|Online Banks||APY||Min Bal||Max Bal||More|
|GE Capital Retail Bank||1.05%||$25,000||_|
|GE Capital Bank||1.00%||$500||_|
|Colorado Federal Savings Bank||1.00%||$5,000||_|
|BAC Florida Bank||0.95%||$500||_|
|Sallie Mae Bank||0.90%||$0||_|
|Navy Federal Credit Union||0.85%||$100,000||_|
|Barclays Bank Delaware||0.80%||$0||_|
|USAA Federal Savings Bank||0.76%||$175,000||_|
|Pentagon Federal Credit Union||0.75%||$1,000||_|
|CNB Bank Direct||0.66%||$25,000||$250,000|
|New Dominion Direct||0.60%||$1,000||_|
|Bank of Internet||0.55%||$1,000||_|
|Capital One 360||0.40%||$10,000||_|
|Salem Five Direct||0.40%||$10,000||_|
One Year CD - Online Banks
One year CDs represent a one year commitment between a depositor (someone who has money to put in the bank) and a bank. The depositor agrees to leave a specified amount of money in the bank for a set period of time. The bank agrees to keep the money safe and to provide a fixed rate of return. Provided the bank is FDIC insured and the deposit amount is within FDIC limits, the principal is also secured by an agency of the United Stated federal government.
While the principal of a CD is safe and insured within FDIC limits the main risk of a CD is inflation risk. Because CDs are such a safe investment, they often do not pay much over the rate of inflation, and often pay under this rate. In these cases, the inflation adjusted value of the CD drops over time. Be sure to think about how CDs fit into your overall portfolio objectives.
How Interest is Paid
The method of distributing the interest earned on a CD varies by bank. Some banks pay interest monthly, other semi-annually, and others at the maturity of the CD. In general, online banks pay the interest electronically with a transfer back to the depositor's primary linked checking account. Other online banks may pay via a check in the mail.
Currently, the most competitive banks offer 1 year rates that are on par with the top online savings and money market rates. Depositors need to decide if they want the fixed rate of the CD or the flexibility of the savings account (savings accounts do not come with any term requirements).
In a rising rate environment, it is generally better to keep money flexible and liquid and put it into either short term CDs or savings or money market accounts.
In a falling rate environment, it is generally better to lock the rate using a CD or some other fixed rate investment.
Online banks generally offer CDs available to residents of any of the 50 states. The CD must be opened online and funded either by online transfer or by mail.
Advantages and Disadvantages
The advantages of online one year CDs are:
Funds deposited in FDIC banks and within insurance limits are protected by the full faith and credit of the United States government.
CDs provide a predictable, set rate of return.
The CD can be opened from the comfort of your house.
The CDs are generally available to any resident of the United States.
The disadvantages of one year CDs are:
One year CDs pay interest rates at par with many online and branch-based savings and money market accounts. There is no premium for having the money locked up for one year.
The deposited money is committed for one year.
The account must be opened online and all inquiries must be conducted online or via the phone.
Depending on the bank, the opening and funding process can take several days to weeks although the bank generally locks the rate once the application has been received and approved.
All banks listed on BestCashCow are FDIC insured; BestCashCow.com strongly recommends that you stay within FDIC insurance limits and that if you are unsure of how the limits affect you, you visit the FDIC website.
To understand all of the income generating options available to a saver, please view the Income Generating Investments Comparison Chart.
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