Banks With the Best CD & IRA Interest Rates

Banks With the Best CD & IRA Interest Rates
FDIC-insured banks.

History

It was just a few decades ago that consumers hoping to shop around for better interest rates on their CDs and IRA accounts didn't have many options. Until 1994, banks that were members of the Federal Reserve System were not allowed to cross state lines. Even within a state, customers in many states could not even use a branch from the same bank if they did not open and maintain their account there. After the Savings and Loan crisis of the 1980s, Congress began to pass banking legislation that opened up competition among banks and allowed for branch banking within a state and across state lines. This meant that finding the best CD & IRA interest rates was now just a matter of looking hard enough.

Considerations

With short-term interest rates at all-time lows, finding the best CD & IRA interest rates is more important than ever. Unfortunately, many of each bank's highest CD interest rates and IRA interest rates require a minimum deposit amount. Other rates may require the customer to also have a checking or savings account in addition to the CD or IRA account. Compare not just rates, but what it takes to get those rates.

Some banks offer higher rates for IRA accounts because they feel that they may be long-term assets even without a long-time commitment for a CD. For IRA accounts be sure to check and see if there is different rate for CDs or even money market accounts that might be higher than the rates offered for non-retirement accounts.

Identification

Finding the best CD and IRA interest rates requires looking at multiple financial institutions. While it is possible to search each individual bank's website manually, there are numerous online resources that make finding the best rates easier. For local rates offered by in-state banks, newspaper and TV station websites often include an interest rate comparison chart that is updated regularly. Financial websites like BankRate.com and offer CD and IRA interest rate comparisons nationwide.

Time Frame

Typically, higher interest rates are offered to customers looking for longer-term CDs and IRA CD accounts. Thus, a five-year CD generally pays more interest than a one-year CD, and a ten-year CD usually pays more than both the former. However, with interest rates at historic lows, be sure to carefully evaluate the pros and cons of locking up funds for a long period of time.

Expert Insight

Interest rates are at all time lows, with the Federal Reserve currently holding its target rate to between 0 percent interest and 0.25 percent interest. From here, interest rates have literally nowhere to go but up. While CDs and IRA accounts with longer timeframes may offer higher rates, those rates are likely to be eclipsed in just the next few years. Thus, the rate on a 10-year CD may be the going rate for a 1-year CD in just two or three years. Consider carefully, the added value of purchasing long-term CDs and IRA CDs at this time. Most people would be better served by 1-year CDs or even 3-year CDs or IRAs than a 10-year CD.

Warning

Most CDs and IRA CD accounts with the best interest rates have penalties for early withdrawal. Be sure to know exactly how much the penalty is for early withdrawal and figure that into your comparison of best interest rates. A 5-year CD offering 3.0 percent interest with a penalty of one-quarter of interest for early withdrawal may be a better offer than a CD offering 3.125 percent interest with a penalty of one year worth of interest for early withdrawal, for most people.

Best Current CD Interest Rates

As of November, 2009, the best interest rates nationally available being offered on 1-year CDs to new and existing accounts were 2.08 percent at UmbrellaBank.com, 2.03 percent at United Americas Bank, 1.99 percent at Pacific Mercantile Bank, and 1.98 percent at Colorado Federal Savings Bank. The average interest rate was 1.680 percent.

The best interest rates on 5-year CDs were 3.30 percent at Discover Bank, 3.05 percent at Ally Bank and 2.97 percent at Aurora Bank, FSB. The average 5-year CD interest rate was 2.873 percent.

All numbers are from BankRate.com. Interest rates listed are as percentages at APY.