INTEREST RATES

The best CD rates largely depend on how long you’re willing to have your money tied up. As of January 2016, the average one-year CD interest rate is 0.27%. Searching for the highest yield possible on a certificate of deposit, or CD, is essential to maximizing your savings. CD rates for similar terms can vary widely and that translates into money earned or potential savings lost.

With thousands of banks, credit unions and online institutions to choose from, getting started isn’t always so easy.
The highest rankings excelled in low minimum deposit requirements and high interest rates on 12-month terms.
With higher rates and a short time commitment of just 12 months, even those hesitant to lock down their savings can benefit from a one-year CD. Finding an account with a low (or no) minimum deposit requirement can make it even easier to open a CD regardless of how much money you are comfortable setting aside.

• Nationwide Bank– Rewarding those with higher account balances, Nationwide Bank’s CD account offers 1.14 percent APY on deposits up to $99,999.99 and 1.19 percent APY on accounts over $100,000 for a 12-month term. The account also has a relatively low minimum deposit requirement of $500, ranking it in the top spot. There’s also no minimum balance requirement to earn interest.

• Barclays Bank-Also requiring no minimum deposit requirement, Barclays Bank Delaware’s 12-month Online CD account gleans a return of 0.80 percent APY. This online bank offers its customers nine term length options.

• Ally Bank-Ally Bank’s CD account is among the top for having no minimum deposit requirement and APY of 1.05 percent for 12-month terms. Ally Bank offers depositors a 10-day grace period to withdraw funds upon opening a CD account without incurring a penalty.

• CIT Bank– The interest rate CIT Bank’s Term CD offers is the same as GE Capital Bank’s, 1.10 percent APY for a 12-month CD, but the minimum deposit requirement is higher, at $1,000. All CD accounts except for the bank’s six-month option are also available as IRA CDs.

• TIAA Direct.-In the sixth seat, with the same minimum account deposit as CIT Bank of $1,000, TIAA Direct’s CD account offers lower yields of 1.01 percent APY, making its returns just shy of double the national average. TIAA Direct customers enjoy choice, as the bank offers 11 different CD terms ranging from six months to five years

• Presidential Online Bank.-Presidential Online Bank’s 12-month CD offers a rate of 0.95 percent APY, and requires a minimum deposit of $1,000 to open, rounding out our list. Presidential Online Bank also offers a variety of short-term CD options, including 30-day, 60-day and 182-day terms; these options are perfect for those who don’t wish to commit to a longer-term account.

• GE Capital Bank-With the same minimum deposit requirement as Nationwide Bank at $500 and only a slightly lower interest rate of 1.10 percent APY for a 12-month CD, GE Capital Bank’s CD account ranked No. 2. GE Capital Bank also accepts high deposits, capping CD accounts at $1 million.

• Bank5 Connect.-Due to its $500 minimum account deposit and high 1 percent APY for terms of 12 months, Bank5 Connect’s CD account claimed the fourth spot. Accounts at Bank5 Connect are protected above the FDIC’s regular $250,000 threshold through Depositors Insurance Fund protection.

• Synchrony Bank.-With the highest minimum deposit requirement on the list, Synchrony Bank’s Optimizer+Plus CD accounts require account holders to invest $2,000 into their CDs in exchange for a return of 1.15 percent APY* on 12-month terms. Encouraging savings, Synchrony Bank offers higher yields for greater balances, providing plenty of motivation to save.

• First Internet Bank.-With a 1 percent APY that’s barely below TIAA Direct’s account, this account has a higher minimum account balance requirement of $1,000. First Internet Bank offers eight different CD terms, from three months to five years, to its customers.

So what are the best strategies for CD savers?
 
Interest rates are at historical lows, and certificate of deposit rates are no exception. With years of paltry yields ahead, savers have fewer safe options than ever. As the great yield drought continues, what can savers and CD lovers do?

• Stick to short maturities

When rates are very low, fixed-income investors run into increased interest rate risk. If interest rates go up, savers are left holding underperforming investments to maturity or trying to sell them at a loss. While CD owners may be able to sell their CD, the more likely scenario would be to break the terms of the CD and take the early withdrawal penalty. That could wipe out years of interest or even eat into principal, depending on how punishing the penalty fee is.
 

• Beware of early withdrawal penalties

Early withdrawal penalties are all over the map and vary among financial institutions. Bankrate’s 2014 early withdrawal penalty survey found that the fee for breaking a CD early can be as high as $50 plus 3 percent of the amount withdrawn. Most are not that onerous — the average penalty for early withdrawal on a long-term CD equals six months’ worth of interest. For CDs with a maturity of less than a year, the average penalty is equal to three months’ worth of interest.
 

• Save more

With a finite supply of money, individuals may struggle to supplement returns on their own. Some CDs, known as add-on CDs, allow you to add deposits, which could at least allow your initial savings to keep up with inflation.
 

• Evaluate options such as the bump-up CD

Some types of CDs are better suited to today’s low-rate environment than others — for instance, the bump-up. If interest rates go up, a bump-up CD allows the owner to request a CD rate increase. With interest rates set to rise in 2015, longer term bump-up CDs would seem to be just the ticket for savers worried about chasing yield and interest rate risk. Unfortunately, they may be hard to come by.
 

• Consider the indexed or structured CD

Another nontraditional CD is the structured CD, which is linked to some other kind of investment, such as the stock market, currency market or commodities. Though they won’t lose money as long as they are held to maturity, returns are typically capped at a percentage of the total return of the underlying index or basket of securities.