Written by 
Edited by 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.
Highest One-Year Online CD Rates - July 7, 2025
1 Year CD National Average: 0.55% ?
| BANK | APY? | MIN? | |
|---|---|---|---|
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4.46% | $50,000 | Learn More |
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Early Withdrawal Penalty is 6 months interest. |
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Geoffrey Christopher 1 | Nov 12, 2023 Finworth looks legit, but their online disclosures and incomplete and you cannot reach them by phone and they don't respond to inquiries. I am moving along and you should too. Read More |
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4.45% | $1,000 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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Az1 | Aug 26, 2022 Too slow to raise rates. Read More |
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4.45%
4.35% |
$50,000
$5,000 |
Learn More |
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Early Withdrawal Penalty is 3 months interest. |
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norich@aol.com | Mar 19, 2024 I have 5 other cd's at competing banks and have not had trouble. I tried 3 times today to open one w/ bradesco and it repeatedly declines my app after I input the code they sent me. Customer service was no... Read More |
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4.40% | $1,000 | Learn More |
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Early Withdrawal Penalty is 180 days interest. |
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Beenthere | Jan 30, 2024 Have an IRA rollover, they don't take IRAs any longer. |
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4.40% | $5,000 | Learn More |
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Early Withdrawal Penalty is 3 months interest. |
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jp2 | Jul 1, 2022 not really an onllne bank. compare this interface that gives you no information with that of any other bank (I cannot even confirm the rate). cannot switch in and out of cds or np cds. just not an online b... Read More |
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4.40% | $10,000 | Learn More |
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Warning: Early Withdrawal Penalty is 270 days interest. |
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Neil | Dec 18, 2023 I submitted a CD application 18 months 5.50 APY over a week ago and my application was declined no reason was given, I have the funds in another bank for transfer, credit score over 800. I think the reason... Read More |
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4.35% | $5,000 |
Learn More
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Early Withdrawal Penalty is 6 months interest. |
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4.35% | $25,000 | Learn More |
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Warning: Early Withdrawal Penalty is 2% of the account balance. |
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Frank M | Jul 3, 2023 A 2% early withdrawal fee on a 1-year CD is almost equally insane as a 270 day one. |
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4.30% | $500 | Learn More |
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Early Withdrawal Penalty is 30 days interest. |
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JBaker65 | May 6, 2023 Fully functional bank account that would be great for my needs, but the quarterly interest payment thing is a real nuisance. I wish they would change it. It isn't market. |
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4.30% | $1,000 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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smithy1968 | Apr 20, 2024 Save your tears for another day. Very frustrating. 1-star. Read More |
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4.25% | $500 | Learn More |
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Rate History: 5.15% → 4.70% → 4.20% → 4.00% → 4.25% |
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Dudley | Apr 18, 2018 Worst experience of my life. Did not fund and gave $25 to my own charity. Read More |
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4.25% | $1,000 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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bws/esc | Apr 27, 2023 have had 3 cd accounts. all interactions with instructions for disposition of funds were never exactly enacted as discussed and requests for confirmatory emails never sent with details as terms discussed. ... Read More |
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4.25% | $25,000 | Learn More |
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Early Withdrawal Penalty is 6 months interest. |
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79Thru | Mar 21, 2023 Parent seems to be owned by a large Chilean bank. Not saying this is good or bad, but it is complication, especially in the current environment. Read More |
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4.21% | $1,000 | Learn More |
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Early Withdrawal Penalty is 180 days interest. |
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Yat 1965 | Mar 19, 2022 Problem with ties to puppy mills. I closed a cct. https://www.americanbanker.com/news/tab-bank-dragged-into-seedy-world-of-puppy-mill-loans-by-fintech-partner |
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4.20% | $2,500 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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HAL1975 | Aug 2, 2023 Sallie mae is just a horrible institution. We've done business with them before and swore on the holy bible not to go near there again, but a 18 mos cd at 5.55% brought us back. |
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4.15% | $500 | Learn More |
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Early Withdrawal Penalty is 180 days interest. |
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richardw9 | Jan 30, 2025 I found CFG Bank while searching for high APYs and went with them since they consistently offers some of the best rates in the country. I’ve had a great experience with my personal money market account. ... Read More |
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4.10% | $500 | Learn More |
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Rate History: 4.30% → 4.20% → 4.10% → 4.25% → 4.10% |
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A Terkowitz | Feb 15, 2024 best bank on the list but no longer the most competitive Read More |
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4.10% | $1,000 | Learn More |
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Early Withdrawal Penalty is 180 days interest. |
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Rob H. | Nov 21, 2023 A real pain in the *** process to try and get approved! They were unable to match my drivers license photo with my live image after several times trying! Went to limelight bank instead and got approved in ... |
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4.08% | $2,500 | Learn More |
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Early Withdrawal Penalty is 3 months interest. |
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JC | Jun 1, 2021 Update: STAY AWAY FROM THIS BANK! They have no clue how to run an online bank. This bank is not ready for prime time. Nothing but problems. Customer service is dismal at best. |
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Restrictions |
4.05%
4.00% |
$100,000
$20,000 |
Learn More |
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Rate History: 4.85% → 4.75% → 4.35% → 4.15% → 4.05% |
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Amanda Frank | Feb 25, 2023 HORRIBLE SERVICE. My son's campus checking account was hacked and over $9000 was stolen. Fraud department was impossible to reach and we waited on phone several days for over 2 hours at a time. They too... |
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4.01% | $1,000 | Learn More |
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Early Withdrawal Penalty is 30 days interest. |
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ytr0171 | Jul 23, 2023 easy to work with but the rate isn't competitive. not even the leading savings rate banks are competitive versus short us treasuries. Read More |
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4.00% | $0 | Learn More |
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Early Withdrawal Penalty is 3 months interest. |
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highstream | Jan 2, 2024 Like others, I've been with Capital One and its predecessor ING Direct since 2007. I've also been getting cheap bank rates on my savings account and didn't realize that there was something better, although... Read More |
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4.00% | $0 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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mcriss | Oct 23, 2023 Synchrony Bank recently closed 3 of my accounts with them and this decision was completely unwarranted. I had two Guitar Center cards and one Levin Furniture card. I found out about this through a push not... Read More |
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4.00% | $500 |
Learn More
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Early Withdrawal Penalty is 6 months interest. |
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4.00% | $500 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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Richard | Jul 1, 2022 Very easy opening process and wonderful staff. |
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4.00% | $1,000 | Learn More |
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Rate History: 5.25% → 5.45% → 4.15% → 4.00% |
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PJs at bedtime | Jun 25, 2022 I've been in and out of igo. I usually carry a large balance when they are rate competitive (half the time) and move by money somewhere else when they aren't (the other half). The $3,000 transfer limit is ... Read More |
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4.00% | $1,000 | Learn More |
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Rate History: 5.00% → 4.60% → 4.20% → 4.35% → 4.00% |
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lrcbob | Jul 26, 2024 Multiple roadblocks trying to set up a savings account with Ivy Bank and my application was ultimately declined, in spite of my multiple CDs among three banks, stock investments, eleven credit cards, and c... Read More |
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4.00% | $1,000 | Learn More |
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Rate History: 5.30% → 5.10% → 5.30% → 4.25% → 4.00% |
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lrcbob | Jul 26, 2024 Multiple roadblocks trying to set up a savings account with Forbright and my application was ultimately declined, in spite of my multiple CDs among three banks, stock investments, eleven credit cards, and ... |
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4.00% | $1,500 | Learn More |
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Early Withdrawal Penalty is 180 days interest. |
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m abram | Jul 4, 2025 Bread's current 6-month CD is 4.45%, not 4.35%. Read More |
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4.00% | $2,500 | Learn More |
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Rate History: 4.90% → 4.80% → 4.70% → 4.10% → 4.00% |
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AVOID_ READ_CAREFULLY | Jan 10, 2024 AVOID at all costs. We read the addendum to the final page of the LENGTHY account agreement mailed to us after completing the online portion. Guess what? It gives this sweet seeming Discover Bank access to... Read More |
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4.00% | $10,000 |
Learn More
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3.90% | $500 | Learn More |
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Rate History: 5.00% → 5.25% → 5.60% → 4.30% → 3.90% |
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AEM | Sep 18, 2023 I agree with another user, this bank is very poorly put together, and may very well be an operation in large part used to extract and sell people's personal information. I called customer service and had ... Read More |
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3.90% | $2,500 | Learn More |
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Rate History: 4.85% → 4.60% → 4.25% → 4.00% → 3.90% |
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james | Nov 18, 2023 bank delayed 1-2days to credit into your account, pay less interest. |
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3.87% | $10,000 | Learn More |
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Early Withdrawal Penalty is 1% of principal. |
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D R Lineberger | Dec 30, 2018 Garden14 Read More |
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3.85% | $0 | Learn More |
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Rate History: 4.25% → 4.10% → 4.00% → 3.90% → 3.85% |
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Rad | Aug 13, 2023 Been a customer for a couple of years now with interesting checking, been a happy customer. They give you a $10 reimbursement on atm fees per statement cycle. They pay you to leave your money there curre... Read More |
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3.85% | $500 | Learn More |
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Rate History: 4.20% → 4.00% → 4.15% → 4.00% → 3.85% |
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Jim S | Dec 21, 2023 Very easy to setup 6 month 5.35% CD from cornerstone account Read More |
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3.80% | $1,000 | Learn More |
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Early withdrawal penalty is one-fourth the amount of interest that would have been earned had CD been held to maturity. |
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smithy1968 | Mar 20, 2025 A non-customer-friendly organization that just switches between two contaminated brands trying to bring back some sort of goodwill that it had before it started selling fake foreign currency CDs in 2006 an... Read More |
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3.80% | $1,000 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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Dkplan | Dec 27, 2022 They gave a hard time with their cashier's check. They returned my deposited check that was emitted by them. Could you believe? |
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3.75% | $0 | Learn More |
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Rate History: 1.25% → 2.00% → 1.25% → 4.25% → 3.75% |
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Stella | Apr 30, 2019 No issues. I feel confident using them. Read More |
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3.75% | $500 | Learn More |
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Rate History: 2.95% → 3.75% |
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LarryMass | Dec 8, 2020 Everyone here in Boston raves about Salem Five but it is shithole operation filled with nasty entitled people. As for this online savings product, the fees are ridiculous, the transfer charges are obnoxiou... Read More |
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3.75% | $1,000 |
Learn More
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Rate History: 4.00% → 4.50% → 4.00% → 3.75% |
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3.75% | $2,500 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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overdrawn | Nov 12, 2022 I was shopping for deposit rates in August, and NerdWallet, a site I had previously trusted, had it on their list. I was unaware they took deposits. They are the only bank that ever duplicated a transactio... |
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3.70% | $500 | Learn More |
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Gary Smith | Jan 28, 2025 4.75% is an introductory rate and they are not openly clear about that. Don't expect 4.75% to continue. They are otherwise competitive. Read More |
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3.65% | $500 |
Learn More
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Rate History: 3.50% → 4.25% → 3.95% → 3.70% → 3.65% |
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3.55% | $1,000 | Learn More |
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• $1,000 minimum deposit to open an account.
• A penalty may be imposed for early withdrawal.
• Account fees may reduce your earnings. |
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nonsense | May 21, 2021 avoid this Read More |
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3.50% | $0 | Learn More |
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Rate History: 4.35% → 3.85% → 3.60% → 3.85% → 3.50% |
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Dev1ldog | Nov 8, 2023 I see nothing exciting about AmEx Bank. Sign on is a hassle and the rates are adequate. Multiple accounts are not summarized. To cancel maturing CDs require phoning in or snail mail. Above average serv... Read More |
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3.50% | $500 | Learn More |
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Warning: Early Withdrawal Penalty is 12 Months interest. |
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Mike Brown | Jul 6, 2023 This is an example of a bad bank. Their online process for purchasing a CD is horrible. You fill it out and it rejects it after all of your private information is disclosed. They there customer service is ... Read More |
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3.50% | $1,000 | Learn More |
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Early Withdrawal Penalty is all interest earned. |
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Jeffinnh | Mar 30, 2021 These guys are the best local bank. Very responsive. |
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3.50% | $2,500 | Learn More |
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Rate History: 1.10% → 3.50% |
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dbestway@gmail.com | Aug 13, 2019 I filled out the application 10 days ago answering all questions and sent a file with a copy of my drivers license to Western Bank. I received an email saying that a banker would call me within one busines... |
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3.50% | $5,000 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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james | Nov 18, 2023 bad bank hold your deposit over months without credit in your account, no interest, they don’t want pay you interest , they want your money with 0% interest. Read More |
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3.50% | $5,000 |
Learn More
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3.50% | $5,000 | Learn More |
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Rate History: 4.50% → 4.25% → 4.00% → 4.35% → 3.50% |
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Dana E. | Mar 20, 2016 Good solid bank. |
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Restrictions |
3.40% | $1,000 | Learn More |
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Rate History: 4.50% → 4.00% → 3.80% → 3.65% → 3.40% |
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Rob | Dec 25, 2023 I joined in PENFED in Spring Of 2023 after 15 yrs of belonging to one of the banking giants. I found my accounts dwindling fast unexplained decreases. I decided to close the account but had to return a mer... |
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3.25% | $0 | Learn More |
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Early Withdrawal Penalty is 90 days interest. |
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LenaL | May 2, 2022 Barclays is the worst. Transfer speeds even worse than Synchrony now. Service is worse than anything. Save yourself the trouble of getting sucked into rates that are sometimes competitive and choose anythi... |
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Restrictions |
3.25% | $500 |
Learn More
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Rate History: 4.85% → 4.75% → 4.25% → 4.00% → 3.25% |
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3.25% | $500 | Learn More |
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Warning: Early Withdrawal Penalty equals one year of interest. |
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JuanVelasco | Mar 17, 2023 STAY AWAY ! They closed my accounts with no warning. After multiple successful direct deposits and mobile checks deposits, they claimed one of the three checks I deposited a few days ago was fake. No... |
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3.25% | $1,000 | Learn More |
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Early Withdrawal Penalty is 180 days interest. |
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J Dally | Jun 13, 2023 I'll steer clear of Dollar Savings Direct and My Savings Direct until they guarantee users at both online divisions their best rates. Banks have the right to segment their customers yes, but these games w... Read More |
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3.25% | $1,000 | Learn More |
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Frank | Apr 8, 2019 Their online interface is circa 2004. They limit the number of accounts you can set up for ACH. And they sit on ACH transfers.... for days. Not sure if the good rates are worth it. Read More |
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3.00% | $0 | Learn More |
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Early Withdrawal Penalty is 180 days interest. |
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Jenny Kingston | Jun 10, 2024 I guess customer service is in the US (not sure). I'd rather that someone in the Philippines answered though. These people are so poorly trained and ill informed that I do not trust them with my personal... Read More |
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3.00% | $500 | Learn More |
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Rate History: 1.00% → 4.60% → 3.00% |
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me joe | Apr 25, 2022 broke the machine, braddah |
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2.91% | $500 | Learn More |
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Rate History: 1.00% → 2.91% |
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tjgarnett | Mar 2, 2024 Attracted to the name, but the service had too many steps so I didn't open an account. |
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2.75% | $1,000 | Learn More |
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Rate History: 0.75% → 3.00% → 2.85% → 3.00% → 2.75% |
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Gripp13 | Jan 27, 2023 The worst bank I have ever had Read More |
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2.50% | $1,000 |
Learn More
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Restrictions |
2.18% | $500 | Learn More |
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Rate History: 4.76% → 4.24% → 3.98% → 3.52% → 2.18% |
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member | Dec 14, 2022 Agree with Jaben to stay away from docfcu. They don't appreciate loyal members and easily turn down any requests after a delayed response. I have closed my accounts and moved my funds to better institutio... |
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2.00% | $1,000 | Learn More |
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Rate History: 0.05% → 2.00% |
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Beenthere | Jan 29, 2024 Tried to enter information on line to open a 5 year CD, multiple time and wasn't accepted. Talked to a live person who was of no help at all. My credit score is over 800 and I have plenty of money in oth... Read More |
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1.80% | $1,000 | Learn More |
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Rate History: 4.65% → 3.00% → 1.80% |
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RYAN S | Nov 28, 2022 While USAA was at one point a great option for all your banking needs, the service has deteriorated so much that I'm currently in the process of changing banks after more than 2 decades. The final straw w... Read More |
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1.01% | $1,000 |
Learn More
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Rate History: 1.65% → 1.01% → 4.15% → 1.01% |
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Restrictions |
0.80% | $500 |
Learn More
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Rate History: 0.30% → 0.70% → 0.80% |
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0.75% | $1,000 |
Learn More
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Rate History: 0.75% → 0.30% → 0.75% |
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0.45% | $500 | Learn More |
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Rate History: 0.45% → 2.02% → 0.45% |
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Thomas DeMauro | Aug 28, 2022 Rates are totally uncompetitive now. |
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0.30% | $1,000 | Learn More |
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MrBond | Feb 25, 2023 I have been working for this company more than 5 years. I would not recommend any investment with First Citizens Bank. They are the worst performer on the market based on the customer and employee reviews... Read More |
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0.25% | $10,000 | Learn More |
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Early Withdrawal Penalty is 181 days interest. |
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UtahJazz1 | Jun 10, 2022 This bank hasn't raised their rates! Maybe I was sleeping but I need to get out of here fast. Read More |
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0.20% | $1,000 | Learn More |
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JR48 | Dec 21, 2022 Stay away from this bait and switch bank that uses teaser rates. They lowered my interest rate twice in the first 2 months of opening my account. They said they had the right to change their rate at any ti... Read More |
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0.15% | $500 | Learn More |
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Afeica | Aug 7, 2020 Had a car loan with them. Paid it off because I was selling the vehicle. They told me it would take 10 business days to clear the transaction (it was immediate via electronic) and was out of my account th... Read More |
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Restrictions |
0.10% | $500 |
Learn More
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0.01% | $500 |
Learn More
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Summary: Today's Highest Online CD Rates - July 2025
| Bank Institution | Product Term | Interest Rate (APY) |
|---|---|---|
| Finworth, a division of InsBank | 1-Year | 4.46% APY with $50,000 minimum |
| Rising Bank, a division of Midwest BankCentre | 1-Year | 4.45% APY with $1,000 minimum |
| Popular Direct | 1-Year | 4.40% APY with $10,000 minimum |
| Popular Direct | 3-Year | 4.15% APY with $10,000 minimum |
| Synchrony Bank | 3-Year | 4.00% APY with no minimum |
| First Internet Bank of Indiana | 3-Year | 3.97% APY with $1,000 minimum |
| Popular Direct | 5-Year | 4.20% APY with $10,000 minimum |
| Synchrony Bank | 5-Year | 4.15% APY with no minimum |
| Merrick Bank | 5-Year | 4.05% APY with $25,000 minimum |
PRODUCT INFORMATION
One-Year CD - Online Banks 2025
Certificates of Deposit (CDs) are offered by most banks in a variety of maturity dates. The 1-year rates in the table above are listed in descending order based on Annual Percentage Yield (“APY”) which is the rate of return that you will earn, when adjusted for compounding, over a 12 month period, and the way in which banks are required by US banking regulations to advertise their CD rates.
A certificate of deposit represents a time 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.
A 1-year CD has a very brief time commitment and can also generate a rate of return above the prevailing savings rate. Therefore, many people use 1-year CDs to slightly augment their rates of return over savings with only slightly more risk than they would have if they were entirely in savings accounts and money market accounts.
FDIC Insurance
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 States federal government against loss. Further information about FDIC insurance is found in this article and if you have specific questions about your own circumstances you should use the FDIC’s Electronic Deposit Insurance Estimator.
CD Risk
The principal of a CD is safe and insured as long as the deposit amount is FDIC limits. Interest that accrues and is paid or deposited to the principal also is safe as long as the total balance remains within FDIC limits.
A CD however bears two significant risks:
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Liquidity risk
If you think you may need access to your principal during the period of the time commitment for a major purchase or an unforeseen expense, CDs are generally not a good place to store money. The terms of most CDs outline the penalty that will be assessed in order to access your capital. This penalty is usually assessed in terms of time periods. For example, a common penalty on a 1-year CD is 3 months, although you should always check this carefully in the terms and conditions before opening a CD as it could be longer. Banks and credit unions are not obliged to offer an early withdrawal penalty, and may change or remove or even refuse to honor the early withdrawal penalty in their paperwork. For further details, please read this article. BestCashCow never recommends a strategy involving the purchase of a CD when you have a high likelihood that you will need your capital. Inflation risk
Since CDs are considered a very safe investment when you stay within FDIC and NCUA-limits, they often do not pay much over the anticipated rate of inflation, and can often pay under this rate. Were interest rates to rise (or the inflation rates to rise), the real or inflation -adjusted value of your CD can drop over time, especially when you factor in the tax consequences of ownership of a CD. In the event of rates rising, you may be able to use the early withdrawal penalty to get your principal but for the reasons mentioned above, BestCashCow does not recommend relying on such a strategy.
Be sure to think about how CDs fit into your overall portfolio objectives.
CD Laddering
An effective strategy used by many to bolster their savings strategy is to own CDs with various maturities. In other words, a depositor with $400,000 and put $100,000 in a 3 month CD, $100,000 in a 6 month CD, $100,000 in a 9 month CD and $100,000 in a one-year CD, then your liquidity risk in highly diminished because you are always near maturity on one of your CDs. (Note that no more than 2 of these CDs should be at the same bank in order to avoid exceeding FDIC limits).
The reality is that we are in a very low interest rate environment, and any CD with a maturity of less than 1 year is going to pay below, perhaps well below, the prevailing rates in the leading online savings accounts or at brick-and-mortar banks. Therefore, the strategy outlined above would be largely absurd in the current environment.
A laddering strategy that would make more sense for the same depositor who might otherwise hold $400,000 in cash would be to put $100,000 in a one year CD every three months. Liquidity risk in the same way is diminished as the depositor is never more than 3 months from maturity, yet the depositor is picking up some small improvement over the best savings rates than where all of his money to be in cash.
Laddering strategies can also involve longer term CDs, but one that involves terms as little as 1 year can improve on the savings rates with minimal impairment to your liquidity.
More information on CD laddering is available in this article.
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 either by adding it to the principal balance or with an ACH transfer back to the depositor's primary linked checking account. Other online banks may pay via a check in the mail.
Interest Rate
Currently, the most competitive banks offer 1-year rates that are slightly above 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 time 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. In a stable rate environment, you may be able to collect a small premium in exchange for your loss of liquidity.
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.
FREQUENTLY ASKED QUESTIONS ON CERTIFICATES OF DEPOSIT
What are CD rates?
CD rates are the fix rate that the bank pays a depositor for entering a CD for the entire term of a CD. They are expressed in annual percentage yield (“APY”) terms, so that they are standardized. $100,000 invested in a one year CD at 1% will be worth $101,000 at maturity in exactly 1 year. $100,000 invested in a two-year CD at 1.50% will be worth $101,500 in exactly 1 year and worth $103,022.50 at maturity (assuming the interest is not paid out before maturity, but is added to the principal). Please see BestCashCow’s Savings & CD Calculator to better understand the magic of compounded interest over time.
Do CDs Pay Interest Monthly or Yearly?
When opening a CD, it is important to consider how interest is credited or paid. Interest can be credited to the CD monthly, quarterly or annually. For those CDs of one year or less, interest may be credited only at maturity.
When interest is paid, the CD holder may have arranged for the interest to be mailed to them as a check. The other option is for the interest to be added to the principal of the CD.
Regardless of how and when interest is paid, it is required to be expressed (standardized) by all banks in the form of an annual percentage yield (“APY”) rate.
How Is Interest on CDs Taxed?
Interest on CDs is taxed as ordinary income. Your bank will provide you with a 1099-INT detailing the interest that you must report on your tax return at the end of each year. Regardless of whether interest is paid in the form of a check or added to principal, CD holders need to report the interest in the year in which it is paid. Purchasing a Certificate of Deposit of one-year or less that pays a single lump sum interest payment at maturity may defer tax on interest until the following year, but otherwise holders of CDs should generally expect to pay ordinary taxes on interest earned in every year in which they hold a CD. Further detail is found in IRS Publication 550 (page 5).
Why Are CD Rates So Low?
CD rates on terms of 1 and 2 years were very constantly low for many years from 2009 to 2015 as the Fed Funds rate was held at zero following the great recession. Rates on longer term CDs were occasionally more interesting during this period (depending more heavily on the level and direction of the US Treasury Bond).
The US Federal Reserve’s action towards normalizing interest rates has been painfully slow (resulting from Brexit, European financial instability, etc.), and CD rates have remained at levels that are very low by historical norms. However, we have seen CD rates rise in 2016 and 2017 as the Federal Reserve has begun to slowly raise the Fed Funds rate.
Are CD rates going up or down? When are they expected to rise?
If the Federal Reserve accelerates its plan to raise the Fed Funds rate or if global economic developments were to cause US treasury rates to rise, we would quickly see higher CD rates. However, the global economic environment is uncertain with European long-term interest rates being negative. Should the US also enter a recession and the US 10-year Treasury rate fall still further, it is possible that CD rates could fall further.
What is a good rate for a CD?
BestCashCow lists the best CD rates available from online banks above, and the best rates from local banks and credit unions. A good rate is the best rate that you can find at an FDIC or NCUA-insured institution, provided that it compensates you adequately over the best savings rates for the liquidity that you are giving up. Only you can determine based on your own personal circumstances whether that is a good CD rate for you. BestCashCow’s Savings & CD Calculator can help you to understand how much more interest a CD can generate over a savings account.
Is there an advantage to a 12-Month Certificate of Deposit over Online Savings Accounts?
At any moment in time, there is ordinarily a premium to an online 12-month CD rate over an online savings rate. The table below demonstrates the spread between the two over the last several years. Whether it makes sense for you to take advantage of these higher rates in the 12-month rate depends on your own need for liquidity and your view on whether and how fast savings rates will rise.
What are the advantages of online one-year CDs?
- 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.
What are the disadvantages of one year CDs?
- One year CDs pay interest rates that are just above the leading rates offered on online and branch-based savings and money market accounts. There is a very slight premium for having the money locked up for one year. Your own circumstances and tax rate will help you to determine if that premium provides adequate compensation to you for your loss of liquidity.
- 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, please visit the FDIC website.
To understand all of the income generating options available to a saver, please view the Income Generating Investments Comparison Chart.