A certificate of deposit is a pretty low-hassle way to put some money you don't need right away to work for you. Interest rates on savings have been around the bottom of the barrel for the past several years now, however, and that's been making it harder for savers to eke out any significant gains on their deposits. It's common to find CDs with either sub-1% interest rates or astronomically high minimums—if not both.
What Is a Certificate of Deposit?
A certificate of deposit is like a savings account, with a couple of key differences. It's an FDIC-insured vehicle where you earn interest on your deposited funds. A CD will generally offer a higher interest than a savings account, but the caveat is that you can't access the money until the CD matures. If you do withdraw the money beforehand, you'll have to pay an early withdrawal penalty.
The Winner: Barclays Bank Delaware, 12-Month CD
Barclays Bank's online CD is Money's pick for the best 12-month CD. This online CD account is the best place to put away some cash where you won't be tempted to spend it. You'll be practicing financial discipline and earning a little extra money, too.
Minimum to Open: $0
Interest: 1.49% (with an APY of 1.5%) Although a couple of other 12-month CDs came close, this is top for an online CD account. Barclays 12-month CD offered the best rate among those surveyed by Bankrate.com and Money.
Early Withdrawal Penalty: 90 days of simple interest on the amount withdrawn. Make sure you won't need those funds in the coming year; an early withdrawal will cost you. If you're not sure what your finances will look like within a year, you might do better with an online checking or savings account.
Why the Barclays CD Wins
The biggest draw of this Barclays online CD is that there's no minimum balance—many CDs require deposits of $5,000, $10,000 or even more—and the early withdrawal penalty is only 90 days of simple interest. Goldman Sachs Bank actually offers a higher 1.64% rate, for instance, but it has a 270-day penalty for early withdrawals.
Mind you, putting your money in a CD isn't going to make you rich: Barclays has a calculator that shows you how much you'll earn. If you have $1,000, at the end of a year you'll wind up with ... $1,015. But if you want an incentive to keep some of your savings locked up, and have it earn a few bucks in return, your best bet will be this CD from Barclays.
Online savings can be achieved with a regular savings account, but the combination of a high rate and the imposition of a barrier to keep you from tapping those funds make this CD appealing.
Barclays Bank has longer-term CDs with higher rates—its five-year CD earns 2.35%, for instance—but monetary policymakers have made no secret of wanting to keep rates moving slowly and steadily. As such, you really want to think hard about your decision before locking up your money at a rate that might not sound all that impressive three or four years down the road.
See Money's full Best Banks methodology.