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Online Savings & Money Market Account Rates 2018

Highest Online Bank Rates for Savings And Money Market Accounts - November 17, 2018

Savings Account National Average Rate: 0.20% ?

ONLINE BANKS APY? Vs. Nat'l Av. MIN?
Sponsored Advertiser Disclosure
My Savings Direct, a division of Emigrant Bank
2.35% 11.99x $1
Citizens Access
2.25% 11.48x $5,000
Sallie Mae Bank
2.20% 11.22x $0
CIBC Bank USA
2.16% 11.02x $0
Purepoint MUFG Union
2.15% 10.97x $10,000
Barclays Bank Delaware
2.05% 10.46x $0
Bank5 Connect
2.05% 10.46x $10
Synchrony Bank
2.05% 10.46x $30
Peoples Bank
2.05% 10.46x $10,000
Simple
2.02% 10.31x $2,000
Incredible Bank, a division of River Valley Bank
2.02% 10.31x $25,000
American Express Bank, FSB
2.00% 10.20x $0
Ally Bank
2.00% 10.20x $0
Live Oak Banking Company
2.00% 10.20x $0
FNBO Direct
2.00% 10.20x $1
Clear Sky Accounts
2.00% 10.20x $1
Capital One 360
2.00% 10.20x $10,000
Radius Bank
1.96% 10.00x $25,000
Northpointe Bank
1.95% 9.95x $25,000
SFGI Direct, a division of Summit Community Bank
1.91% 9.74x $0
BankPurely, a division of Flushing Bank
1.90% 9.69x $0
Alliant
Restrictions
1.90% 9.69x $5
TIAA Bank / Everbank
1.90% 9.69x $100,000
Ridgewood Savings Bank
1.85% 9.44x $0
ableBanking, a division of Northeast Bank
1.85% 9.44x $1,000
Cross River Bank
1.82% 9.29x $0
Dollar Savings Direct, a division of Emigrant Bank
1.80% 9.18x $0
BBVA Compass Bank
1.80% 9.18x $0
Discover Bank
1.80% 9.18x $0
EBSB Direct
1.80% 9.18x $5,000
My Banking Direct, a division of New York Community Bank
1.75% 8.93x $25,000
Amboy Direct
1.61% 8.21x $30,000
UFB Direct, a division of Bofi Federal Bank
1.60% 8.16x $5,000
Northern Bank Direct
1.51% 7.70x $0
BAC Florida
1.50% 7.65x $5,000
Dime Community Bank
1.35% 6.89x $1,000
Axos Bank, a division of Bofi Federal Bank
1.30% 6.63x $0
Colorado Federal Savings Bank
1.25% 6.38x $1
Zions Bank
1.06% 5.41x $1,000
Mutual of Omaha Bank
1.00% 5.10x $1,000
Virtualbank, a division of Iberiabank
0.80% 4.08x $100,000
OneWest Bank, a division of CIT Bank
0.40% 2.04x $100,000
New Dominion Direct
0.40% 2.04x $100,000
CNB Bank Direct
0.26% 1.33x $100
AirBanking
0.25% 1.28x $1,000
Kirkpatrick Bank
0.15% 0.77x $1
Pentagon
Restrictions
0.15% 0.77x $10,000
All rates listed are Annual Percentage Yield (APY). The APY rate in a savings account or money market account is a variable rate that is subject to change at any point. The Min listed is the minimum deposit account balance required to obtain the rate listed.

If you have cash in a large bank, or any bank with low savings rates, you are making less in interest than you could be and should be making. There are FDIC-insured banks that will pay you more through higher savings rates on your deposits. Take a few minutes to explore the table above that presents an unbiased list based on the best savings rates currently offered by online banks. You may be able to boost your annual interest earned from savings by more than 10X. Banks are always competing for your money. Take advantage of it!

Summary: Highest Savings Accounts

Bank Institution Interest Rate (APY)
My Savings Direct 2.35% APY with $1 minimum
Popular Direct 2.26% APY with $5,000 minimum
Citizens Access 2.25% APY with $5,000 minimum
iGobanking.com 2.25% APY with $25,000 minimum
Sallie Mae Bank 2.20% APY with no minimum
CIBC Bank USA 2.16% APY with no minimum

PRODUCT INFORMATION FOR HIGH INTEREST ONLINE SAVINGS ACCOUNTS

How Do Online Savings Accounts Work

Over the last two decades, online banks have emerged to offer depositors higher rates on their online savings and money market accounts than are available in the major money center banks and in smaller brick-and-mortar banks. Since these online banks do not have expensive branch networks to maintain, they usually pass some of their savings back to depositors in the form of higher rates. All online banks and local banks listed on BestCashCow are FDIC Insured.

Unlike certificates of deposit (CDs) or time deposits, money in savings and money market accounts accrue interest on a daily rate. The best yielding savings rates can conceivably change from day-to-day with new online banks emerging or existing banks more aggressively seeking to raise the capital accounts. It is important to check back on BestCashCow regularly to be sure that your savings accounts continue to earn the most competitive rates, no matter what the rate environment is.

The table above lists the highest yielding online savings account rates.

Recent Performance of Online Savings And Money Market Accounts

BestCashCow data has shown that the highest yielding online savings account rates have increased over the past year. The Federal Reserve remains committed to raising The Fed Funds Rate over the next year. This should cause leading savings rates to continue to increase through 2018 and into 2019.

The average online savings or money market rate exceeds the national average rate quite dramatically. The graph below shows how the average rates for online savings and money market accounts have trended over the last several years.  Even while online savings rates have improved, the the average rate of all online and locally offered savings accounts in the BestCashCow rate database has remained much lower at 0.14%. (The BestCashCow rate database, the largest in the world, contains rates on over 2,000,000 bank products from all 8,000 banks and 7,700 credit unions in the US.)

Best High Yield Savings or Money Market Accounts

Depending on where you live, there may be banks and credit unions offering rates still higher than the best online savings rates. Check BestCashCow’s list of the highest yielding local bank rates and the highest yielding credit union rates.

Best Online Bank Accounts with High Interest Rates

In the above table, you will find a list of the highest online savings account rates, ranked in descending order by interest rate currently offered. Online bank accounts are slightly different in terms of their features and the services offered. By reading the reviews of each bank, accessible from the rightmost column, you will be able to determine which bank is the best for you. Please also refer to the section below entitled “Best Online Savings Account Rates".

Are Online Savings Accounts Safe?

All bank accounts listed on BestCashCow are insured by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC is a federal government chartered institution that provides insurance to a maximum amount of $250,000 per individual per institution (or $500,000 for joint account holders). All deposits (CDs, Checking, Savings Accounts) held in the same type of ownership at a single financial institution are only insured to $250,000. However, funds held in different types of ownership (Individual, Joint, Trust, Retirement) may fall under separate FDIC insurance provisions. BestCashCow.com strongly recommends that you deposit savings in only FDIC insured institutions and that you do not exceed FDIC coverage limits. Please visit the FDIC's website to determine your coverage limits based on your circumstances.

Advantages of Online Savings Accounts:

  • Higher interest rate.
  • Often top notch online functionality with 24/7 access, 365 days a year. You can check your balance, update your contact info, make transfers, and order deposit slips at any time. For more pressing issues, customer support is also usually accessible 24/7, so you can talk to an actual human instead of your computer screen.
  • Superior online and mobile access. Many traditional banks have been slow to adopt the best web and mobile features to improve the customer experience online. 
  • Easy money transfer capabilities to and from a primary checking account.
  • Liquidity. Depositors can withdraw their money at any time.

Disadvantages of Online Only Banks:

  • A variable interest rate. Most leading online banks have not lowered rates significantly in the past 18 months, there are often new entrants to the market that can disappear as quickly as they arrive on the scene. Any savings rate can conceivably be lowered at any time.
  • Interaction is only via phone or Internet. You cannot walk into a branch and talk to a customer service representative if you have a problem with your savings account. Nonetheless, the leading, high profile online banks provide virtually instant phone access at all hours to a representative. However, interaction with some of the smaller online banks can be more difficult as it is ordinarily limited to business hours in their area of operation.
  • You cannot get money cash or cashier's checks instantly as you can in a branch bank, and matters where you need to rely on the US Postal system can lead to significant delays and obstacles.
  • There is no opportunity to build a relationship with a banker should you need a loan or additional services in the future.

What is the best account for easy access?

Depending on where you live and how accessible the branch is, you may find that the best account for easy access is through a local bank or credit union. However, today many high yielding savings and money market accounts provide such easy accessibility, including through mobile apps, and can enable such easy transfers to a correspondent account at a local bank through ACH transfers, that more and more people are opening accounts for cash and savings that they do not need immediately.

Is a high-yielding online savings account your best option?

High-interest savings accounts are always an ideal place to keep your emergency fund or any money to which still you need ready access. Your money will be safer than if you stuffed it under your mattress, and it will grow a bit, too. Investors will find that keeping large amounts of money in savings and CDs provides them with lower returns but cushions them against market crashes like we experienced in 2000 and 2001 and again in 2008 and 2009.

Compare Online Savings Accounts

Savings Rates at Most Recognized Online Banks

To see how savings and money market accounts compare with CDs or time deposits and bonds, view the BestCashCow income guide here.

FREQUENTLY ASKED QUESTIONS ABOUT ONLINE SAVINGS ACCOUNTS

What is a savings account?

A savings account is one of the simplest types of bank accounts. It allows you to store cash securely and earn interest on your money.

What is a money market account?

The differences between a savings account and a money market account are largely arcane. Some savings accounts are limited by US federal regulations to six outbound transfers per month (the bank may allow additional access for a fee). Money market accounts are technically not bound by those limitations and offer more ways access deposits by issuing checks and debit cards. Prudent consumers will compare the two interchangeably, focusing primarily on rates and service among FDIC-insured banks (or NCUA-insured, for credit unions). Consumers who maximize their use of online savings and money market accounts access these accounts through ACH transfers that are easily set up on the online bank’s website so the additional ways to access deposits that money market accounts offer are rarely valuable.

How to Open a Savings Account?

The process of opening an online savings account or money market account is usually very simple. Banks ordinary ask you a few questions to verify your identify. These questions include seeking information from a state or government issued ID, such as a driver’s license. Due to increased US anti-money laundering rules and Department of Homeland Security requirements, it is very likely that you will also be asked to produce a photocopy of your license and a picture taken from your iPhone or other smartphone and emailed to the bank will ordinarily suffice. The bank may ask for information regarding a correspondent account from which you intend to have them draw the money to provide the initial funding. You therefore will need the ABA number and account number from an existing account that you have. They will verify this account by having you log back in to confirm the amounts of one or two small deposits to your correspondent account before they draw the funds from this account. Finally, many banks do a “soft” credit pull from Experian, Equifax or some other credit rating agency. While your credit rating will ordinarily not be affected, the application process may involve your answering questions about where you have lived, loans you may have had, past employers or cars you may have owned. Many people do not enjoy providing the amount of personal information required over the internet; therefore, some of the larger online banks have 24-7 customer service to guide you through the process. You can see the experiences of others with a given online savings bank that you are considering by reviewing the comments left in BestCashCow’s table above.

Are online savings rates always better than rates at brick-and-mortar banks?

No. Online banks often offer higher savings and CD rates because they have lower expenses from not having to maintain brick-and-mortar locations. You should also check rates at local banks and credit unions. Unlike other websites, BestCashCow.com compiles all of these rates, listing them in an unbiased manner that shows the proximity of each bank or credit union to you. Please access these rates using the tabs above.

Why do savings rates vary so much?

Even though rates are at levels that are historically very low, there is competition for your money. Like any active marketplace, there are buyers and sellers of goods and services at different prices.

How do I choose the right savings or money market account?

Begin your search with the table here on BestCashCow.com. In addition to checking online savings rates, you should also check local bank rates and local credit union rates.

What is the Best Fixed Rate Savings Account?

BestCashCow strongly encourages people to avoid very short-term promotional rates. The very nature of a savings or money market account is that the rate can change from one day to the next. Savings rates may be guaranteed not to change for some very short length of time, but they are not fixed. If you require a fixed rate or greater certainty that the rate that you are making will not change, you should consider CDs, which represent a time deposit, for some or all of your savings.

Should I consider CDs?

If you are unlikely to require access to your cash for some time, you may also consider certificates of deposit (CDs). While CDs have penalties for early withdrawal that may even eat into your principal, the rates on 2, 3, 4 and 5 year CDs are ordinarily significantly higher than savings rates. CDs also offer the certainty of rate stability for the term of the CD. Several sections and articles on BestCashCow can also help you to identify your proper cash allocation between savings and CDs.

With savings rates at such low levels, does earning a higher savings rate or the best savings rate really mean anything to me?

Even a difference of a couple of basis points (hundredths of percentage points) can really add up over time, especially on large sums of money. You may wish to familiarize yourself with the BestCashCow Savings Calculator in order to understand the importance of compounding interest at higher rates on your savings over time.

If you are too lazy to access the BestCashCow Savings Calculator or to bother with the magic of compounded earnings, here is the plain and simple truth:
  • $250,000 deposited at a major money center bank like Chase, Citibank, Bank of America or Wells Fargo is likely earning less than 0.10% APY. That money is therefore making no more than $250 a year in interest.
  • That same $250,000 deposited at a leading online bank is earning over 1% or over $2,500.
  • Even though the increased earnings from high yield savings (in this example, $2,250 annually) is fully taxable at the federal and state and local levels, wouldn’t you like to be earning that extra income from high-yielding savings accounts?

What does APY mean?

“APY” stands for annual percentage yield. Savings rates are displayed in terms of APY to indicate the effective annual-interest return, including the compounding of interest, of the course of a single year. $100,000 deposited in a savings or CD account with a 1.20% APY will earn $1,200 in the course of the year, but monthly interest in the first few months may be less than $100 a month (this also depends on the number of days in the month). Hence, the APY rate is ordinarily a couple of basis points above the real interest rates. Unlike with a CD, your actual APY in a savings account or money market account may vary if the rate changes.

Are you still afraid to open a high interest-earning online savings account?

Here are some common reasons people hold off:
  • You need to make more than six withdrawals a month. Avoid potential problems by either opening a high earning online money market account (some of the best rates available in the table above are actually from online money market accounts), opening a savings account at a bank which does not enforce the 6 transfer limit, tying your account to a correspondent bank’s money market account or checking account at a major money center bank (like Chase, Citibank, Wells Fargo, or Bank of America) where you make one larger transfer each month.
  • You like having access to a physical branch. Find out what the minimum balance required to avoid fees on your account at your physical branch, then transfer the excess balances to a high yielding online savings or money market account. You’ll continue to have access to the physical interaction and services of the bank with which you are used to banking, but you will also be dramatically increasing the interest earned on cash you don’t need over time.
  • You need to deposit large sums of cash or checks in excess of the online bank’s mobile deposit limit. In this case, you need access to a physical branch. See point 2, above.
  • You want one institution to handle all of your financial matters. While most online banks do not offer mortgages, credit cards and brokerage services. But, in 2018, there is no financial advantage to keeping all of your financial transactions in one or even a handful of institutions.

What is a health savings account?

A health savings account (or HSA) is a tax advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit. According to IRS Publication 969 (2016), the interest or other earnings on the assets in the account are tax free and distributions may be tax free if you pay qualified medical expenses or other expenses not covered by health insurance such as dental or vision care. Due to the tax advantages of a health savings account, these accounts should be set up separately through banks offering them (such as Chase or Bank of America) and their assets should not be comingled with a high yielding online savings account. We know of no online banks currently offering HSAs.

What is an education savings account?

Education savings accounts, such as Coverdell Education savings accounts and 529 plans are accounts allowed family members to obtain certain tax advantages through setting aside for a child’s future education. 529 programs are administered at the state level and you must invest in programs they administer; Coverdell education savings accounts are move flexible (and generally following the same rules as IRAs), however we know of no online banks currently offering Coverdell Education savings accounts.

What is a child savings account?

A child savings account is a savings account in the name of the child with a parent or guardian named as the custodian on the account until the child reaches the age of 18 or 21 (depending of the child’s state of residency). A child savings account can be a great way to teach your child the importance of saving money from a young age. More information on child savings accounts can be found here. Ally and Capital One 360 are among the few online banks offering child savings accounts.

BEST ONLINE SAVINGS ACCOUNT RATES

Finding the best high interest online savings or money market account is a highly subjective exercise. The best account for your neighbor may not be the best account for you. To help you determine which account is best for you, we have created the following 7 point checklist:
  • A competitive interest rate. BestCashCow maintains the most comprehensive list of deposit account rates. The rates above are the best available rates for online savings accounts. In order to ensure that your money continues to grow over time, you may wish to avoid banks which rely heavily on very short term promotional rates (such as EverBank). If you open an account with a promotional rate or even if you open an account where the rate isn’t promotional in nature, you should check back with BestCashCow regularly to be sure that your bank continues to offer one of the most competitive rates.
  • Full functionality through online and mobile access. Most of the accounts listed above have robust websites and mobile access that enables full functionality. Read the comments from other users before opening an account as they often highlight problems with access.
  • Access how the bank provides customer service. Many of the leading online banks now have customer service representatives who are U.S. based and available 24/7 with low wait times. This is often a distinguishing feature that makes a well-recognized bank significantly more attractive than a smaller bank trying to enter the online banking arena.
  • Absence of fees. Be sure that you are opening an online account with a bank that doesn’t charge fees and has very low minimum balance requirements. American Express, CIT, GS Bank, Barclays and Ally are all well known for low minimum requirements and the absence of any unusual monthly fees.
  • Easy Access to your Cash through Immediate Online Transfers. The reason why you keep money in savings is for access in an emergency or to take advantage of immediate financial opportunities. You need access to your cash. Yet, some banks impose strict limits on the amount of cash that you can access from your account in a single transfer or limit the numbers of transfers you can conduct over a given time period. Other banks can delay your transfers for days while they make money on the float. You should check with the bank where you are considering opening an online account to understand the restrictions before you open an account. You may also read the comments from other users above as they can highlight any which banks enable the best access to your cash.
  • Stay within FDIC limits! See the section above and read this article.
  • Use the BestCashCow Savings Calculator to see how important it is to be maximizing your interest on savings accounts over time.

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

BestCashCow's Best Bets in Online Savings and Money Market Accounts for 2019

BestCashCow's Best Bets in Online Savings and Money Market Accounts for 2019

The Federal Reserve moved in September 2018 to a 2 – 2.25% Fed Funds rate, and savings and money market rates are now firmly above 2%.    

Interest rates are poised to go up again in December 2018.  Unless Trump fires Jay Powell, the Federal Reserve will likely continue to raise rates in 2019 until it reach its stated 3% + neutral rate by end of the year.

Not everyone checks BestCashCow.com or competing sites every day in order to get the best savings rates.   In fact, there are people who don’t even check monthly or quarterly.   And, most people just don’t like the hassle of moving around large amounts of cash in order to continue to get a competitive rate as rates rise.

For these people, BestCashCow has developed our Best Bets in Online Savings and Money Market Accounts for 2019.   On this list, you will find the five online bank accounts that have correlated the strongest with each Federal Reserve move (the highest beta).   For each of these accounts, we have recorded a savings or money market rate increase either just before or within days of each Fed Funds rate increase over the course of 2018.  

If interest rates continue on their current trajectory, we believe that with these 5 online savings and money market accounts, you are most likely to wake up on December 31, 2019 and learn that your savings rate has increased with each Fed move over the course of the year.

Excluded from this list are those banks that have maintained rate competitiveness over the course of 2018 but have exhibited a tendency towards requiring existing depositors to move their money between accounts (from savings to money market or vis-a-versa) or from one brand to another in order to get the best rate.   It isn’t that we don’t like these banks and these rates, but this list is designed for those depositors who want to go to sleep for 2019 and do not want to worry about whether they are earning a very competitive savings or money market rate.

Here is BestCashCow's list:

  1. Citizens Access
  2. CIT Bank
  3. Sallie Mae Money Market
  4. Marcus Savings
  5. Purepoint

See the best online savings and money market rates today

Advertiser Disclosure: This list contains advertisers and non-advertisers.   No bank, advertiser or non-advertiser, has provided any consideration for inclusion in this list.   Please read our advertiser policy here.


November 2018 Update – Five Nationally Available Online Savings And CD Accounts to Consider

November 2018 Update – Five Nationally Available Online Savings And CD Accounts to Consider

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

Online savings and CD rates rose in October.  We continue to favor savings rates over CD rates.   It remains likely that the Federal Reserve will raise the Fed Funds rate from its current 2.00 – 2.25% Fed Funds rate to a 2.25% - 2.50% rate in December.   While the Fed continues to guide towards a Fed Funds rate over 3.00% before the end of 2019, it is increasingly possible that Presidential histrionics and/or a slowing economy may temper those moves so locking into online CDs may be an attractive proposition to some. 

Here are 3 savings accounts that we find interesting at this point:

  1. Citizens Access – 2.25% Savings Rate for balances over $5,000

Citizens Access is a division of Citizens Bank, N.A., a large established bank with over $150 billion in assets.   It entered the online market in 2018 with a competitive 2.00% savings rate and has been quick to move rates up in response to Fed Funds moves.   The reviews of the bank on BestCashCow are extremely positive.  

Editor’s Note:  Citizens Access is an advertiser of BestCashCow.   Please read our Advertiser Disclosure here

  1. MySavingsDirect – 2.25% Savings Rate, No Minimum Balance

MySavingsDirect is a division of Emigrant Bank, a large New York-based bank.   While the rate is attractive, Emigrant has developed a customer-unfriendly practice of remaining competitive for new customers by raising rates at different subsidiaries when the Federal Reserve moves.   This practice leaves earlier customers earning a non-competitive rate.   As rates continue to rise in 2019, you can expect that you will need to move your assets out of MySavingsDirect (perhaps to another Emigrant subsidiary) in order to stay competitive.  That’s an OK strategy so long as you make a plan to check the latest savings rates on BestCashCow frequently.   The good news is that Emigrant’s divisions make accounts easy to open and fund.

  1. Marcus – 2.05% Online Savings rate for balances over $1

Marcus has outstanding customer reviews and lightening fast ACH transfers.  Since Marcus is part of Goldman Sachs, depositors, especially those inclined to deposit over FDIC limits, can always sleep well at night.   Importantly, as rates have risen through 2018, Marcus has proven to be faster to raise rates than the other most recognized online banks (Amex, Barclays and Ally).  While it may not always sit on top of the table, depositors with Marcus can anticipate that their savings will remain competitive as rates rise.   Those depositors who follow rates closely and are prepared to make adjustments as rates rise can now get 2.15% in Marcus’s 13-Month No Penalty CD.   We recently wrote an article highlighting No Penalty CDs as a relatively risk-free way to boost your savings rate

Editor’s Note:  Marcus is an advertiser of BestCashCow.   Please read our Advertiser Disclosure here

See and compare all of the best online savings rates here. 

Those compelled to reach for the higher rates than online CDs offer after a decade of abnormally lower returns on cash may want to consider the following two online CD products:

  1.  Citizens Access – 2.70% 1-Year CD for balances over $5,000

Citizens Access, mentioned above for its online savings account, is also offering one of the most competitive online CD rates nationally available.   Even if savings rates are above 3.00% at the end of 2019, we don’t think you’ll make much less though 2019 by locking into a one-year CD throughout the course of the year with cash that you know you won’t need to access.   Citizens Access has an early withdrawal penalty on CDs of 12-months or less of only 3 months’ interest.

See all of the best 1-year online CD rates here.   You should also compare locally-offered 1-year CD rates here.

  1. Citizens Access – 3.05% 3-Year CD for balances over $5,000

We are inclined to question whether a 35 basis point improvement over Citizens Access’s one-year CD rate represents an attractive enough premium for an additional two years’ commitment.   However, many economists believe that inflation is not present and that the Federal Reserve just is not going to ever get much above a 3% Fed Funds rate in this cycle.  Citizens Access’s early withdrawal penalty on CDs over 12 months is equal to 6 months interest on the CD which is shorter than the penalties for early withdrawal on long-term CDs charged by many other online banks.

See all of the best 3-year online CD rates here.   You should also compare locally-offered 3-year CD rates here.

Have a great month and Happy Thanksgiving!

Image: Courtesy: KNKX

No Penalty CDs May Offer An Easy Way to Boost to Your Savings Rates

No Penalty CDs May Offer An Easy Way to Boost to Your Savings Rates

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

Here at BestCashCow, we have been a fan of the No Penalty Certificate of Deposit since Ally began offering it years ago.   It ordinarily offers depositors a slight improvement over a comparable savings rate at the same online bank. Since this product can be terminated easily online with no penalty, it is basically a savings or money market account wearing a  different skin (i.e., a different name). 

In an environment where interest rates are falling, the product is especially good as you lock into a higher rate than savings and have some protection against falling rates.

Interest rates probably won’t fall in 2019, but the product remains appealing as a way to generate a better savings rate.

The two main disadvantages of No Penalty CDs are:

First, you will need to terminate the entire CD in order to make a partial withdrawal (as is the case for most CDs).  Since it can be terminated without any penalty at any time after the first few days, and then a new one can be opened, this is more of a nuisance than a disadvantage for some.

Second, in a rising rate environment, this product only works for those who check rates regularly.  Competitive savings and money market rates - including those offered by the same very online bank - can and do go above the No Penalty rate that you are locked into, and if this happens you will want to terminate the CD and move back to the savings account.  The good news is that if the bank raises the No Penalty rate, you can terminate (again with no penalty) and reopen a new one at the higher rate in seconds.    

Ally Bank is the most prominent player in the No Penalty area and has offered an 11-Month No Penalty CD for years.  The best rate is usually only available for those with $25,000 or more to invest.  Since Ally is currently offering a 1.90% rate for online savings and a 2.10% rate for this product, we think that it is more attractive at the moment than their current savings rate, so long as you have the $25,000 to invest.

CIT entered this market earlier this year with an 11-Month No Penalty CD that offers a 2.05% rate.  However, since CIT is now offering 2.15% in its Savings Builder account, we think that product is better for those meeting its requirements (depositors maintaining a $25,000 minimum balance or who deposit $100 each month).

Marcus began offering its first No Penalty CDs yesterday when they introduced a 13-Month No Penalty CD at 2.15% with only a $500 minimum deposit.   Since Marcus’s online savings rate is now 2.05%, depositors considering opening accounts and existing depositors are likely to find this attractive.

No Penalty CDs aren’t for everyone.   As noted above, you shouldn’t consider them unless you do not anticipate needing the principle often and quickly and you are prepared to follow rates.   But, if you meet these criteria, they just might be worth a look.

BestCashCow lists all online No Penalty CD rates and other special CD rates here.   You may also find No Penalty CDs and other special CD rates from local banks near you here.

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