Online Banks Offer Higher CD Rates Than Traditional Brick and Mortar Banks
Over the past ten years online banks have become more mainstream and usually offer higher CD rates on average than traditional brick and mortar banks. Granted the higher CD interest rates you can get at online banks are minimal these days since all deposit rates are very low but every basis point counts towards a higher return!
The ease of opening a certificate of deposit account online is also a lot better than walking into a local bank branch to open an account, that is if you're comfortable with opening an account online. Many traditional brick and mortar banks also offer online CD rates which have better rates than the rates they offer for the same CD products at branch location.
Not only can you get better CD rates online the entire process of opening an account and funding an online account is so much easier. A few banks also offer a type of certificate of deposit account that allows you to increase the CD rate after you open the account. These types of accounts are known as "bump up" certificates of deposit, some allow you to increase the bank CD rate on the account more than once.
Since rates will be heading higher in the next several years a "bump up" certificate of deposit might be a better choice for you, though these types of accounts usually have CD rates that are lower than the best CD rates available for the same certificate of deposit term. For example, Ally Bank's current 24 month "Raise Your Rate" CD rate is currently at 1.12 percent with an APY of 1.13 percent. The highest CD rates on 24 month certificates of deposit are slightly higher at 1.19 percent with an APY of 1.20 percent.
In a rising interest rate environment, which we probably will be in when 2015 rolls around, these types of accounts will start looking like better deals. When the Federal Reserve starts to increase the Fed funds rate they do so in 25 or 50 basis point increments. When this happens banks usually follow suit soon after and increase CD rates by the same amounts.
With the current rate difference of only 5 basis points, if rates move up 50 basis points you can have your rate increased by 50 basis points as well, that is as long as the bank that you have your bump up account with increases the rate. Regardless of what type of account you choose one thing you can be sure of is the rate you receive will be lower than you probably even imaged but you will secure a higher CD rate online.
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