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One Year CD Rates from Online Banks 2018

Spread between Online Savings and 1 Yr CD - History Chart 2011 to 2018

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.

January 23, 2018

1 Year CD National Average: 0.55% ?

Advertiser Disclosure
APY Vs.
Nat'l
Av.
MIN
EverBank / TIAA DIrect
1.91% 3.50x $1,500
M.Y. SAFRA BANK, FSB
1.90% 3.49x $5,000
Ally Bank
1.85% 3.39x $25,000
Marcus
1.80% 3.30x $500
Sallie Mae Bank
1.80% 3.30x $2,500
Popular Direct
1.80% 3.30x $10,000
BAC Florida
1.80% 3.30x $100,000
Discover Bank
1.76% 3.23x $2,500
Barclays Bank Delaware
1.75% 3.21x $0
iGobanking.com
1.75% 3.21x $1,000
BankPurely
1.75% 3.21x $1,000
Incredible Bank, a division of River Valley Bank
1.72% 3.16x $1,000
Colorado Federal Savings Bank
1.70% 3.12x $5,000
Capital One 360
1.65% 3.03x $10,000
Amboy Direct
1.65% 3.03x $10,000
Pentagon Federal Credit Union
Restrictions
1.61% 2.95x $1,000
Purepoint MUFG Union
1.55% 2.84x $10,000
Navy Federal Credit Union
Restrictions
1.55% 2.84x $100,000
Nationwide Bank
1.46% 2.68x $100,000
New Dominion Direct
1.35% 2.48x $1,000
Commercial Investment Trust
1.32% 2.42x $1,000
My Banking Direct
1.31% 2.40x $0
Northern Bank Direct
1.06% 1.94x $10,000
AirBanking
1.00% 1.83x $500
Bank5 Connect
1.00% 1.83x $500
Bank of Internet, a division of Bofi Federal Bank
1.00% 1.83x $1,000
USAA Federal Savings Bank
0.76% 1.39x $175,000
CNB Bank Direct
0.66% 1.21x $1,000
American Express Bank, FSB
0.55% 1.01x $0
OneWest Bank, a division of CIT Bank
0.55% 1.01x $1,000

PRODUCT INFORMATION

One-Year CD - Online Banks 2018

Certificate of deposits are offering by most bank 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 Stated 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:

  • 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.


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 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.

SAVINGS & CD CALCULATOR

Find out how much extra money you can earn by moving your bank money into an account that pays more.

Use or Change these Amounts And Rates

A Five-Year Certificate of Deposit Paying 3% in 2018

A Five-Year Certificate of Deposit Paying 3% in 2018

Rate information contained on this page may have changed. Please find latest cd rates.

As we begin 2018, 5-year Certificates of Deposit offered nationally and online don't yet earn 3%.  Depending on where you live, you may however find a 5-year CD in your city offered by a local bank that pays 3%.  Or, you may find a 5-year time deposit (which is the credit union terminology for a 5-year CD) offered by a local credit union that pays over 3%. 

Interest rates have moved dramatically higher in 2017.  When we began 2017, it was difficult to find a nationally offered 5-year CD at 2%.

With the Federal Reserve under Jay Powell predicted to move the Fed funds rate at least 3 times in 2018, BestCashCow predicts that we will see 5-year CDs higher than 3% in 2018.  Therefore, we would suggest that you refrain from buying a 5-year CD at least until you see a 3-handle. 

And, when you do see 3% APY on a 5-year CD, you should be aware that we may be poised to move still higher from there.  For that reason, we also recommend that you look for CDs with early termination fees (or penalties) of 6 months’ interest or less.    Many of the 5-year CD rates that are listed in our online CD table have more onerous penalties for early termination.  You should also be aware that the issuing bank may retain the right not to honor an early termination request.

As we start 2018, savings accounts and one-year CDs are a safer bet.  You may also want to check CD specials online and locally.

Happy New Year from all of the folks at BestCashCow.

Image: Courtesy: Pexels

GiftsforBanking.com: Interesting, but not for Everyone

GiftsforBanking.com: Interesting, but not for Everyone

Rate information contained on this page may have changed. Please find latest cd rates.

There are a ton of ads floating across the internet offering you an “Ipad” bundle or a new Samsung flat screen TV if you open a new 2-year CD.

If you click on one of the advertisements, you will immediately be transported back to 1996 which was not only the last time gifts were routinely offered for opening a CD, but also appears to be the year that the website where you have landed was designed.

If you can navigate through the 1996-ness, you find an offer that is real and present and interesting, but not for everyone.  The two-year CD rate is 1.85% - which today is a very competitive 2-year online CD rate.  In some parts of the country, you will find better 2-year CD rates at local banks or local credit unions.   (Giftsforbanking is also offering three and four year rates on this product that are not competitive).

If you open a 2-year CD with over $100,000, you’ll receive a coupon redeemable for any of several products such as a Trek bike, a 55-inch Samsung curved TV, a 12-inch MacBook, a tag Heuer Aquaracer watch, a Baume & Mercier watch, a Canon Eos camera or a DeLonghi expresso machine.  With only a $25,000 deposit, you can get a current third-generation Apple watch.   With a $50,000 deposit, you can get a number of other interesting products or packages, such as a Bose speaker.  Based on our research, it appears that you can get a gift or package of gifts that retails as high as $1,500 with a $100,000 deposit, and for those who are number crunchers, such a gift will gross up a CD return by 75 basis points annually.

GiftsforBanking is owned by Flushing Bank.  The bank was established in 1929 as the Flushing Savings Bank in the Borough of Queens, New York and renamed in 2010. With assets in excess of $6.2 billion, it is now one of New York State’s largest banks.  You can learn more about the bank here. Flushing Bank  owns IGoBanking and Bank Purely and this CD is opened through the IGoBanking website.  They permit more than one CD to be opened under this program which is also quite interesting, but, as with any bank, you should stay within FDIC-insurance limits.

The fine print on the GiftsforBanking website includes the following language:

“There is a substantial penalty for early withdrawals, including the value of the gift chosen. The value of all gifts will be considered as interest on your account for tax purposes in the first year the account is opened. A 1099-INT statement for the value of the gift (including applicable sales tax, shipping and handling costs) will be issued for the year of gift redemption.”     

When we contacted Flushing Bank, we learned that the penalty for early withdrawal is 6 months on the 2-year CD and that those redeeming can expect a 1099-INT for “more than” $575 for a $25,000 deposit, $1100 for a $50,000 deposit and $1700 for a $100,000 deposit.

With the receipt of the 1099-INT, you will be responsible for reporting and paying tax at your ordinary tax rate in the year in which you open the account.  Should you need to terminate the CD early, you’ll also be out the bank’s 6-month early withdrawal penalty as well as the amount reported under the 1099-INT.

This offer therefore only makes sense if you are entirely certain that you will not need or want your principal back before maturity and that the product you are receiving as a gift is one that you would definitely want to purchase anyway.   But, if your goal is simply to be rewarded for your banking activity, we prefer opening a new travel rewards credit card where you can get more value without locking up your capital and receiving a tax liability.  

Image: Courtesy: Pexels

EverBank Returns to Its Earlier Monkey Business Following TIAA Acquisition

EverBank Returns to Its Earlier Monkey Business Following TIAA Acquisition

Rate information contained on this page may have changed. Please find latest cd rates.

EverBank today launched a 3-year MarketSafe Emerging Currency CD.  I could write ad nauseum here about how inappropriate this investment is for most unsuspecting investors.  I could write about why it shouldn’t be called a Certificate of Deposit.  I could write about how I believe that EverBank is violating the 1933 SEC Act.  But, wait a minute.  I already did.  This product is exactly the same as a product that EverBank offered in 2014 and that I wrote about extensively then (see my article here), except that they have replaced one dictatorship’s currency for another (swapping out the Russian ruble for the Turkish lira) and decided that Indonesia’s rupiah is more attractive than South Africa’s rand. The Chinese renminbi, the Indian rupee and the Brazilian real, however, remain constants in this product.  The other things that remain a constant is that neither the people offering it nor those buying it have any idea what they are doing, and those buying it will not see any appreciation on their investment.

As a general proposition, this is the wrong time in the cycle to be playing with emerging markets, although some countries have unique circumstances that will enable them to outperform (perhaps Argentina).  If you must invest, the play is to invest in those countries or in U.S. or European denominated debt through a fund offered by a big fund family that knows what they are doing in emerging markets (maybe Ashmore).  And, if you insist on investing in currencies, the major investment banks offer structured products geared to lever appreciation in U.S. dollar terms should another currency (a single currency) appreciate against it.    Under any circumstance, avoid this EverBank product.

The best 3-year CD rates are listed here.