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1-Year CD Rates from Online Banks 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.

Highest One-Year Online CD Rates - July 21, 2018

1 Year CD National Average: 0.76% ?

BANK APY? Vs.
Nat'l
Av.
MIN?
Sponsored Advertiser Disclosure
Bank5 Connect
2.55% 3.35x $500
Colorado Federal Savings Bank
2.51% 3.30x $5,000
M.y. Safra Bank, Fsb
2.51% 3.30x $5,000
Ablebanking, A Division Of Northeast Bank
2.50% 3.29x $1,000
Cit
2.50% 3.29x $1,000
Live Oak Banking Company
2.50% 3.29x $2,500
Citizens Access
2.50% 3.29x $5,000
Connexus
Restrictions
2.50% 3.29x $5,000
Barclays Bank Delaware
2.40% 3.15x $0
Synchrony Bank
2.40% 3.15x $2,000
Popular Direct
2.40% 3.15x $10,000
Ally Bank
2.40% 3.15x $25,000
Pentagon
Restrictions
2.35% 3.09x $1,000
Igobanking.com, A Division Of Flushing Bank
2.35% 3.09x $1,000
Virtualbank, A Division Of Iberiabank
2.35% 3.09x $10,000
Sallie Mae Bank
2.30% 3.02x $2,500
Capital One 360
2.30% 3.02x $10,000
Purepoint Mufg Union
2.30% 3.02x $10,000
My Banking Direct, A Division Of New York Community Bank
2.25% 2.96x $0
Tiaa Bank / Everbank
2.25% 2.96x $1,500
Discover Bank
2.25% 2.96x $2,500
Bac Florida
2.25% 2.96x $100,000
Incredible Bank, A Division Of River Valley Bank
2.12% 2.79x $1,000
Navy Federal Credit Union
Restrictions
2.10% 2.76x $100,000
Nationwide Bank
1.91% 2.51x $100,000
Bbva Compass Bank
1.85% 2.43x $500
Dollar Savings Direct, A Division Of Emigrant Bank
1.80% 2.37x $1,000
Airbanking
1.65% 2.17x $500
Radius Bank
1.55% 2.04x $500
Northern Bank Direct
1.50% 1.97x $10,000
New Dominion Direct
1.35% 1.77x $1,000
Amboy Direct
1.26% 1.66x $10,000
Bank Of Internet, A Division Of Bofi Federal Bank
1.00% 1.31x $1,000
Usaa Federal Savings Bank
0.76% 1.00x $175,000
Cnb Bank Direct
0.66% 0.87x $1,000
American Express Bank, Fsb
0.55% 0.72x $0
Onewest Bank, A Division Of Cit Bank
0.55% 0.72x $1,000
Veridian
Restrictions
0.35% 0.46x $1,000
All rates listed are Annual Percentage Yield (APY). The Min listed is the minimum deposit account balance required to obtain the rate listed.

PRODUCT INFORMATION

One-Year CD - Online Banks 2018

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 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.

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Avoid the 3.10% 3-Year CD that TD Ameritrade is Hawking

Avoid the 3.10% 3-Year CD that TD Ameritrade is Hawking

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

TD Ameritrade sent out an email today to their clients trying to sell a callable CD with an October 2021 maturity that is yielding 3.10% APY.   The term of the CD is actually three years and three months.

Some BestCashCow users contacted me about it today; one even said it looks like a “no brainer”.  While the product may seem attractive at first glance, it should be avoided.  

Here is why:

  1. You Lose If Interest Rates Go Down.  The CD is callable by the issuer one-year after its issuance and then every three months.   While I think it unlikely that interest rates will go down over the next three years, there are people who do, and if they do, this thing will be called away from you.  That doesn't happen with a regular CD (non-brokered CD).
  2. You Lose If Interest Rates Go Up (or if you need liquidity).  If interest rates continue on their trajectory, and as guided by the Fed, they are going to be much higher in one year.  And, while there is a “market” for brokered CDs, you’ll be selling this at a huge loss if you want to take advantage of higher interest rates (or if you need liquidity).

A rising interest rate environment is not the time to be chasing yield, especially by locking up your money for long periods.   If you want to chase yield here, consider online one-year CDs or online two-year CDs.  You may find better local rates on one-year or two-year CDs.

The only brokered CDs that we have seen recently that are at interesting are Morgan Stanley’s 6 month 2.20% CDs and, for the reasons discussed here, we’d also avoid those.


Constant and Completely Inappropriate Advice on CNBC: “Just Buy the 2-Year Treasury”

Constant and Completely Inappropriate Advice on CNBC: “Just Buy the 2-Year Treasury”

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

The recent rise in the Fed Funds rate and in short term rates – and real fear of economic instability caused by Trumputin’s erratic behavior and US imposed sanctions – is leading virtually every talking head on CNBC to advise viewers to “Just Buy the 2-Year Treasury”.

The 2-year Treasury rate today sits at 2.52%.  Rates are higher than they have been in years and, therefore, it looks attractive.  The rationale that is provided for buying is that it is a great yield and that, in the worst case, you will get your money back in 2 years.   That rationale may make sense for corporate managers and endowments with large amounts to deploy.  But, those aren’t really the people who are watching CNBC, and for 99.999% of CNBC’s audience, the advice is wholly inappropriate.

Short-term rates are clearly on an upwards trajectory.  If they were to move dramatically higher over the next six months to one-year, which is possible given the Fed’s guidance and, in fact, probable if you believe that we are entering an inflationary trade war, investors in U.S. Treasuries of all maturities, including short-term Treasuries, will take huge hits to principal if they need to be liquidated.   The main point here is that it continues to be an absolutely dreadful environment for buying any sort of bonds.  To be clear, savings accounts which are already yielding close to 2% are much safer than the 2-year US Treasury.

If you really insist on reaching for yield, a 2-year CD is a much more attractive option than the 2-year US Treasury.  BestCashCow now shows many nationally available online 2-Year CD rates that are at 2.75% or higher.  In certain geographies, BestCashCow is showing rates from local banks and credit unions that are even higher.  So you are getting a much higher yield.  With most CDs you will ordinarily have the ability to get your money back early with the payment of an early withdrawal fee (although not always).  Thus, your risk becomes quantifiable and measured (versus entirely open-ended with Treasuries).   1-year CDs ordinarily have smaller early withdrawal fees (less risk) and are also offering yields that that are almost as high as the 2-Year US Treasury.

BestCashCow always recommends that depositors stay within FDIC limits.  High net worth individuals have a harder time staying within these limits and may be more inclined to consider Treasuries.  However, given the proliferation of CDARS programs, the CNBC advice is inappropriate for all but the wealthiest of these folks as well.

Before investing in any CD, read or download our CD primer.

See today's best online savings rates.

Image: Courtesy: Talking Biz News

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

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

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

When we began 2018, I wrote an article predicting that that we would see 5-Year CDs offering 3% in 2018, and recommending that depositors wait for the 3-handle before pulling the trigger and buying these products.

We have seen 5-year CD, offered in some markets, that yield 3% for over a month.   Now, midway though 2018, we see 3% CDs offered nationally.  This morning, with Marcus raising their 5-year CD to 3%, we even see the better-known names beginning to hit 3%.

Given that rates have been compressed for over a decade, a 3% rate seems like an attractive place to lock-in for the long-term.   Even with the Fed raising rates, many are predicting that we have seen the top of long-term rates, and even more are predicting that the President’s disastrous economic policies will throw the economy into a tailspin that will force the Fed to curtail its actions. 

We, however, think it is equally likely that the Fed will be forced to move still faster to fight off incipient inflation caused by poor China policy.  It is possible, if not likely, that 5-year CDs will rise to 4% by this time next year.  Therefore, we’d recommend depositors continue to focus on savings and shorter-term CDs.

If you do decide to invest in long-term CDs, we strongly recommend doing so judiciously and looking for lower early withdrawal penalties.   Capital One, Barclays and Sallie Mae all offer 5-year CDs with a 6-months penalty should rates rise or should you need the money.   Marcus’s 5-year CD penalty is 270 days.   We would avoid those products that have penalties of 1-year or longer.

Read our 65 Questions to Ask Before Choosing a CD.

Image: Courtesy: Diskifans.com