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By Leslie Cook
Updated: October 21, 2020 1:00 PM ET
Janice Chang for Money

Let’s face it. There’s nothing better than watching our savings grow over time. Certificates of Deposit, or CDs, offer a great way to do just that, with higher interest rates than most savings accounts, so long as you can avoid touching your money for a set term.

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CDs come in a variety of lengths, typically ranging from as short as one month to 10 years or longer. Frequently, you can choose whether to receive interest monthly or as a lump sum when the CD matures.

Of course, once you open a CD, you usually won’t be able to withdraw money from it without paying a penalty, which can mean losing part of the interest or even some of the principal. Another big drawback: CDs typically pay fixed rates of interest over the term you select. With interest rates currently near all-time lows, you risk losing out on extra earnings if rates rise in the near future.

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To make our pick for the best CD, we looked at 12-month certificates from more than 70 of the nation’s largest banks, online banks, and credit unions. We evaluated interest rates, minimum opening deposits, and early withdrawal penalties to come up with the best overall option.

Best 12-Month CD: Ally Bank

Why it wins: Ally Bank’s 12-month High Yield CD combines a high interest rate with a low opening-balance requirement and low early-withdrawal penalties.

As of Oct. 7, you can earn 0.65% interest on all balance amounts. There is no minimum opening balance required although you won’t earn interest until you’ve funded the account (the account must be funded within 60 days of opening). If interest rates go up within the first 10 days of funding your CD, with Ally’s 10 Day Best Rate Guarantee you’ll automatically get the higher rate.

Ally also offers a rewards program. If you choose to roll over a maturing Ally CD to a new one, the bank will add 0.05% to the interest rate it offers on the new CD. (You’ll need to check with the bank 30 days prior to the date of maturity to see what the exact amount of the reward will be.)

If you need your money before the CD matures, Ally has an unusually low early withdrawal penalty – 60 days’ interest on CDs with terms of 24 months or less. (The typical withdrawal penalty at most banks and credit unions is between 180 to 270 days of interest).

You can open your CD with Ally one of three different ways – online, by phone with an account rep, or by downloading the application and mailing it in. Once opened, you can manage the account, request a CD renewal or early withdrawal, and receive account alerts online or via Ally’s mobile app.

Caveat: While there’s not a lot wrong with Ally’s CD, it does have drawbacks. Some banks allow you to withdraw or transfer the interest earned on a CD without penalty. Ally doesn’t have that option. Also, some banks will offer a higher interest rate on higher balance, while Ally’s CD is a flat rate for all balances.

Runners Up:

Marcus by Goldman Sachs: With a 12-month High Yield CD with Marcus, you’ll earn 0.85% interest as of Oct. 7, one of the highest interest rates we found. Marcus, like Ally, also offers a 10-day rate guarantee, so if rates go up you can take advantage of the higher interest.

There is a reasonable opening balance requirement of $500. However, Marcus’s early withdrawal penalty is much stiffer than Ally’s: 270 days of interest.

Synchrony Bank: Synchrony Bank pays 0.60% interest, as of Oct. 7, on its 12-month CD and offers a 15-Day Best Rate Guarantee. If the interest rate is higher on the day you fund the CD, you’ll get the higher rate.

There’s a minimum opening balance requirement of $2,000, which isn’t as low as Ally or Marcus, but is still a reasonable amount. Synchrony does charge an early withdrawal penalty of 90 days interest if you need to withdraw from the principal.

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To produce this year’s Best Bank rankings, Money reviewed account information for more than 70 of the biggest national banks, online banks, and credit unions around the country. The account information included minimum opening balances, interest rates, and early withdrawal penalties. Money’s editorial team fact-checked information in October.

More from Money:

Money’s Best Banks: Why Capital One Is Our Pick for Best National Bank

Money’s Best Banks: Why Ally Is Our Pick for Best Online Bank

How Can Retirees Living Off Savings Succeed in Today’s Low-Yield Environment?

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