Certificates of deposit are an important financial planning tool because they represent the safest investment you can make. You deposit funds, you get a guaranteed interest rate until the CD matures. You have to deal with inflation risk, that the rate of inflation could outpace your return, and the risk that you may need the funds. If you close a CD early, you will usually have to pay an interest penalty unless it’s a no penalty CD.

Personally, I don’t deposit funds into a long term certificate of deposit because I’m at an age where it doesn’t make sense from a financial planning perspective. We’re in our twenties so we’re thinking about things like starting a family and buying a home so a three-plus year CD wouldn’t make sense because our situation is changing so quickly. However, once it stabilizes, I see the value in saving money in longer term CDs as a way of planning for the future.

What I do use long term CD rates for is when I make investment decisions. CDs represent a 100% safe “investment” opportunity, so any potential investment is compared against a three or five year CD. If I can get a guaranteed 3% for a 5 year CD, why would I want to invest in something that has risk and only returns 3%?

Top Long-Term CD Rates

The following table lists the top CD rates for maturities of more than 24 months. In general, most will be 5 or 6 year CDs since the longer the maturity the higher the rate.

All of the banks on this list are FDIC insured up to $250,000.

If you are looking for a high yield savings account to earn more money, you have come to the right place. This page will give you three of my choices for the best online bank along with their rates, a list of comparable banks, and between the two you will find a savings account that will beat your current one.

High yield savings accounts are the rage these days, with people pouring billions of dollars into banks and certificates of deposit. A few years ago, the only online bank with a high yield savings account was ING Direct. At first I was a little apprehensive – an entirely online bank with no physical branches I could visit? But they were FDIC insured and it’s turned out well. Since then, dozens have popped up to offer high yields because they run leaner than traditional brick and mortar banks. No branches, no tellers, no managers, no paper statements – all result in higher yields.

Enter in a new class of deposit account – the high yield savings account. It follows all the rules of a regular savings account except the bank running it is cutting costs wherever it can and passing it along to you, the customer, in higher interest rates. So which online banks offer the best high yield savings accounts?

Best High Yield Savings Accounts

Everbank’s 2.51% Bonus Rate

If you’re looking for the best rate you can get from an a high yield savings account, Everbank is the one for you. Right now you get an interest rate of 2.51% for three months, which is certainly among the highest, and the initial deposit requirement is only $1,500. You only earn the bonus rate on the first $50,000 you deposit, anything over earns 1.50%. EverBank, along with every bank on this site, is FDIC insured since 1998 (FDIC Cert. #34775) up to $250,000.

In terms of accolades, they have collected several in their years in the business. Kiplinger’s Personal Finance once named them the “Best Checking Account” because their yields were often 10X that of industry averages while Money Magazine named them a “Best of the Breed.” For five years in a row, Forbes.com named them the “Best of the Web.” This isn’t a bank that will pull a bait and switch, they’ve been here for a while and their reputation speaks for itself.

Ally Bank

A relatively new entrant into the online savings account world is Ally Bank. Ally Bank is an online bank that’s been FDIC insured since August 2nd, 2004 under FDIC Certificate 57803. They are a unit of GMAC Financial Services and was once known as GMAC Bank before changing their name in May of 2009. The reason I like Ally Bank is because they have no minimums on any of their deposit accounts, they offer plenty of options from an online savings account to no penalty certificates of deposit; all of which are at market competitive rates. They are certainly worth a look.

Click to apply for an Ally Bank account today!

Best High Yield Savings Accounts Rates

I’ve compiled a list of the best of the best FDIC insured (now up to $250,000 through December 2013) banks below.

* Everbank offers 2.51% promotional rate for the first 3 months, then 1.77% thereafter.

Are these online banks safe? Yes, they are FDIC insured and you can confirm that with the FDIC’s Bank Find tool. In fact, with all the bank failures lately, you might be surprised to learn that not a single one was an online bank.

How much money do you have sitting in a savings account? $500? $1,000?

Do you have plans for that money? If not, it should be in a certificate of deposit at your bank. If your bank doesn’t offer good CD rates, then you should open a CD with an online bank and take advantage of their better interest rates. If you don’t think you have enough money, you’re wrong. You can open a CD at an online bank with a single dollar.

One dollar.

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Ally Bank was the first online bank to offer a no-penalty certificate of deposit and now it appears that the idea is catching on. Discover Bank will announce tomorrow that they are making their 12 month CD a no-penalty CD, where you can withdraw your funds should you involuntarily lose your job. All new and renewing account holders will get this benefit (existing account holders won’t, I assume because neither party can change the terms before maturity).

What is a No-Penalty CD? If you read my Certificate of Deposit Zoo post last week, then you’ll know that no-penalty CDs are ones where you can withdraw your deposit before the CD’s maturity date without any interest penalty. Normally a CD will charge you 3-6 months worth of interest to close it early, no-penalty CDs let you close your account.

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(Updated 9/1) In the world of banking products, you are always trading off interest rate for flexibility. Typically the higher the interest rate, the less flexible the account. Take CD rates for example, they are often higher than savings accounts and they are less flexible. You decide how long you’re willing to keep your money locked up and then pick a bank that offers the best rate for that term. If you wish to get your money early, you pay penalty. On the other end are checking accounts. Checking accounts have the worst interest rates but offer the most flexibility. You can get your cash whenever you want it, write as many checks as you’d like, and visit your own ATM without penalty. For that flexibility, you earn very little, if any, interest.

Where does that leave money market accounts?

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(Updated 11/6) I’ve been keeping a list of the best CD rates for certificates of deposit in the 12-month to 18-month maturity range, figuring that’s typically the sweet spot for rates. If the CD maturity is too short, banks won’t give you a good rate because it’s such a short period of time. If the CD maturity is too long, the customer is taking on a lot more inflation risk than the bank is probably paying out for. However, short term certificates of deposit still have their place:

• You’re setting up a CD ladder and you need CDs to fill up those short period slots.
• You have funds in an account that currently isn’t earning the highest yield for savings, transferring the funds will take time and cut down on your interest earned… so you might as well throw it into a short term CD to get a better rate.
• You simply don’t want to rate chase and open up a new account with each new online bank that offers a high rate, so you might as well hit up a short term rate with the bank you’re worth just to get a little extra.

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(Updated 10/9) Here is a list of the nationally available best CD rates, updated regularly. I looked at the best rates available for CDs of less than 18 months and listed the one with the highest rate. Typically the longer the term, the higher the rate, but for many online banks the best rates were for periods of shorter than 18 months. For simplicity’s sake, I put the cutoff at 18 months (some banks offer higher rates for longer terms). If you want shorter term CD rates, I have also compiled a list of highest short-term CD rates (less than 12 month maturities).

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