Discover Bank CD Rates Review

Discover
Most people know Discover as a credit card company, but it also operates an online bank and offers some of the best rates and terms on checking and savings accounts and certificates of deposit (CDs).

If you’re looking for CDs in particular, Discover is currently considered one of the best CDs due to their customer service and digital tools.

Discover Bank CD rates

CD term

Annual Percentage Yield (APY)

Minimum deposit amount

3 months

0.35%

$2,500

6 months

0.65%

$2,500

9 months

0.70%

$2,500

12 months

1.50%

$2,500

18 months

1.55%

$2,500

24 months

1.65%

$2,500

30 months

1.70%

$2,500

3 years

1.76%

$2,500

4 years

1.85%

$2,500

5 years

2.25%

$2,500

7 years

2.30%

$2,500

10 years

2.35%

$2,500

Rates as of Dec. 5, 2017

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How do Discover Bank CD rates compare?

While Discover Bank CD rates aren’t always the highest available, they are consistently among the top offers across all terms. However, you may be able to find a similar or even better rate with a CD that has a lower minimum deposit than Discover’s. Currently, several nationwide banks offered a 12-month CD at a rate higher than Discover’s 12-month CD APY, while requiring a lower minimum deposit. For example, at the same time the above rates were available at Discover, there were 12-month CDs with rates as high as 1.65% APY with a minimum deposit of $500.

It’s always great to go for the highest interest rates possible, but keep your CD investing strategy in mind. If you’re investing in CDs using the ladder strategy, it might be easier to keep everything in one bank since you’ll be switching in and out of CDs frequently.

Discover also stands out from its competition in the CD space with its mobile app and 24/7 U.S.-based customer service. If you value such features, keep those particulars in mind when weighing Discover CD rates against others’.

What you need to know about Discover Bank’s CDs

Discover Bank is very transparent in terms of fine print. It’s not difficult to understand what’ll happen with your money after you invest it. We’ll cover the basics here about what you need to know to invest in Discover Bank’s CDs.

How to open a CD

It’s very simple to open up a CD with Discover Bank. Go to their CD webpage and click on the orange “Open an Account” button near the top right of the page. You can then choose which accounts you’d like to open. Select “CD,” choose a CD term and enter how much you’d like to deposit.

You’ll then need to complete the application by providing your name, address, date of birth, phone number, Social Security number, employment status and possibly even your driver’s license. Once your application is complete and accepted, you’ll need to fund the account.

How to fund the CD

You’ll need to fund it within 45 days of submitting your application, which you can do in one of three ways:

  • Transfer funds from another bank account over the phone. (You can only do this when you first fund your account.)
  • Transfer funds from another bank via online transfer.
  • Write a check to yourself and send it to the following address:Discover Bank
    P.O. Box 30417
    Salt Lake City, UT 84130

The minimum deposit amount for each of Discover Bank’s CDs is, as the chart above indicates, $2,500. Once you open a CD, you can’t deposit more money later, so it’s a good idea to make sure you have all the cash you want to invest before you open the account.

Withdrawing funds from the CD

When you want to withdraw money from your CD, the biggest thing to consider is whether that CD has matured yet, or finished its term.

If your CD has not matured, you’ve got options: You can take the interest out penalty-free at any time, or you can withdraw the principal (or the money you deposited) at any time as long as you pay an early-withdrawal penalty. This penalty varies depending on the original term of your CD:

  • less than one year: three months’ worth of simple interest
  • one year to less than four years: six months’ worth of simple interest
  • four years: nine months’ worth of simple interest
  • five years to less than seven years: 18 months’ worth of simple interest
  • seven years or longer: 24 months’ worth of simple interest

If your CD has finished its term, you can withdraw your money penalty-free, allow the CD to renew or roll it into a CD of a different term length. (More on that in a bit).

Earning interest on a Discover CD

Your CD will start earning interest on the same business day that you fund the account. The interest will be added to your account once each month, however.

When it comes to what to do with your interest, you have two options: The default option is to allow it to compound within the CD (meaning you’ll earn interest on that interest), or you can have it automatically deposited each month into another Discover bank account.

What happens once the CD matures?

You’ll get a heads-up notice about a month before your CD matures so you can decide what to do with the money. You have two main options: Either reinvest it into another CD (of the same term length or a different term length), or withdraw the money from the CD and put it into another account (such as a checking or savings account, or perhaps a CD at a different institution).

If you don’t let Discover know what you want to do with the maturing CD, the CD will automatically renew into another one of the same term length. You have a nine-day grace period after your CD automatically rolls over to make any changes or withdrawals penalty-free.

The bottom line

As far as big-name banks go, Discover offers great CD products. Wells Fargo, for example, only offers interest rates as high as 1.55% APY on a $5,000 deposit for a 58-month CD. Chase Bank offers even lower maximum rates — an abysmal 1.05% APY, and only if you can commit a minimum of $100,000 for 10 years.

If you’re the kind of person who likes to keep your finances in one place, Discover also has great credit cards, as well as competitive online savings and checking accounts. No matter how long you’re considering putting money in a CD, Discover is worth a look. Even if it doesn’t have the best available rate, it’s usually within several basis points of the top offerings and well above the average APY.

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The post Discover Bank CD Rates Review appeared first on MagnifyMoney.

The Fed Just Teased a Rate Hike. Will Savings Rates Finally Improve?

If you want to make the most of rising interest rates, here's your game plan.

Interest rates are likely going up again, and soon, Federal Reserve Chair Janet Yellen told Congress Tuesday, sending up a clear flare for anyone paying attention.

“Waiting too long … would be unwise,” she said. This, after the Fed telegraphed in December that 2017 might bring three separate rate hikes.

That’s bad news for all kinds of borrowers because interest rates on many different credit vehicles will likely follow suit. It should be good news for savers with money in old-fashioned deposit accounts and those who like certificates of deposit (explained here), and money market account holders for the very same reason. But that remains to be seen.

When the Fed raised its key funds rate in December — for only the second time in 10 years— that triggered increases across the entire financial world. Auto loan rates went up. Mortgage rates went up. Credit card rates went up. So why didn’t savings rates follow suit?

Well, they did. A little. A very little.

The average savings account annual percentage rate increased from 0.180% in January to 0.181% in February. That’s up from 0.179% in December of last year, according to DepositAccounts.com. So, in two months, that’s an extra two pennies per year per $1,000 saved. Don’t spend it all in one place!

“The banks are being very cautious,” said Ken Tumin, DepositAccounts.com founder. “There has been no mass movement in deposit rates.”

Keep in mind, mortgage rates are — predictably— up about half a percent during the past year, according to Freddie Mac. So are auto loans, according to the Federal Reserve. So what gives? Why are consumers seemingly being punished on both sides of the equation?

Well, there’s plenty of speculation as to why. Recall the basic concept that banks accept deposits — and give depositors interest— so they can lend that money out at a higher rate to borrowers, and profit from the difference.

One possible reason is something known as “asynchronous price adjustment.” It’s the same phenomenon often observed when there are price shocks in the oil market. Gas prices go up quickly, but drop slowly when oil returns to its normal price. There are many mechanical market reasons for this, but suffice to say that corporations adjust more quickly than consumers to price movements, so they are good at making a little extra cash when big turnarounds take place. So, like gas prices, savings rates will bend pro-consumer eventually, but not before banks enjoy a bit of time with the extra “spread” between the savings rate they pay and the interest rates they charge.

Skepticism Remains About Rate Increases

A more direct reason, Tumin said, is that banks are still unconvinced that rates are going up more. Back in 2015, the Fed raised rates once and indicated that 2016 might include a series of hikes. Those never materialized, as questions about a sluggish economic recovery remained. So banks might be scared of a similar head fake this year, Tumin said. No bank wants to lead the pack with higher savings rates.

Also, like any business, banks only pay more for raw materials (money, in this case) when they have to— because of competition, or because they need cash because the lending business is going great guns.

“Rates are determined by banks needing to raise capital, to improve what’s called their loan-to-deposit ratio,” Tumin said. That’s not happening at the moment.

It wasn’t always this way. As recently as the housing bubble years, high-yield, Internet-based savings accounts paid 3-4%, and CD rates persisted into the 5% range. Today, the very best passbook rates hover around 1%, and CDs aren’t much better, though some banks offer teaser (temporary) rates that are a smidgen higher.

You Still Have Options … Though Not Great Ones

Consumers sitting on cash with a very low risk tolerance do have some options, though none of them are great. Tumin says savers should keep their eyes on CD rates: When banks have short-term needs to raise capital, they are more likely to temporarily offer higher CD rates. That’s because it’s much easier to lower CD rates after the capital is raised than to lower passbook savings rates.

One-year CD rates had the largest increase last month, DepositAccounts says, with the average annual percentage yield (APY) increasing from 0.496% in January to 0.505% in February. The average 1-year CD rate among the top 10% of the most competitive banks nationwide increased from 0.880% to 0.910%.

CD rates can fluctuate quickly. Capital One 360’s 60-month rates have vacillated between 1 and 2% during the past year, for example. (They sit at 2% right now).

CDs come with a big “but,” however.

“In a rising rate environment … no one wants to get stuck in a CD,” he said. A 2% rate that looks good today might look bad 18 months from now, when it’s possible the Fed will have raised its rate five or six times.

Recall that CDs require time commitments, and often have hefty penalties for early withdrawal. Consumers considering this route should carefully weigh the withdrawal penalties (Some are less onerous— 6 months’ interest, for example— which might make them a decent risk).

Of course, savers frustrated by low yields can consider more risky, non-guaranteed investments in the stock market. But who can blame a saver for thinking the market, and the economy, seems a bit volatile right now?

Your Best Bet? Pay Down Debt

The best course of action is to pay down debt, which is very nearly the same thing as earning interest on your money. Pay your highest APR credit card debt, of course. But making a few extra payments on a car loan or, better, a mortgage, is a good way to earn a “return” on cash that’s otherwise sitting idle.

Keeping your credit in good shape is also helpful. A good credit score can help you get the best terms and rates available. If you don’t know where your credit stands, you can check your two free credit scores, updated every 14 days, right here on Credit.com. You’ll also get personalized details about ways you can improve your credit scores in five key areas. (If you’re not sure where to start, you can check out these tips for how to quickly improve your credit score.)

Meanwhile, pay attention to what the Fed says in the coming weeks and months. Tumin is pretty sure Yellen isn’t crying wolf this time.

“A March increase is still on the table,” he said. “Most analysts think the Fed will probably skip March, and that the next (increase) comes in June. Unless the economy turns around and goes down I don’t think there will be a repeat of last year with only one hike. There should be at least two, and if savers are lucky maybe three.”

They’ll be lucky if banks pass along the higher rates to both mortgage borrowers and savers. Meanwhile, you can take luck out of the equation by continuing to watch published rates and consider switching to a bank when it raises rates. After all, someone’s got to be first.

Image: xesai

The post The Fed Just Teased a Rate Hike. Will Savings Rates Finally Improve? appeared first on Credit.com.