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MoneyWatch: Managing Your Money

Should you open a CD account online?

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By
Matt Richardson
Sr. Managing Editor, Managing Your Money
Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
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Matt Richardson

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By opening a CD with an online bank savers may be able to secure the very highest interest rate. Getty Images

The latest round of inflation may finally be cooling, but higher interest rates meant to combat it appear to be staying put, at least for the foreseeable future. After a pause in rate hikes in June, the Fed raised interest rates again in July to a benchmark rate between 5.25% and 5.50%. That's the highest rates have been in 22 years. 

While higher interest rates make the cost of borrowing prohibitive, they've also resulted in a significant earnings increase for those with high-yield savings and certificates of deposit accounts. Rates on these specific account types are exponentially higher than what can be obtained with a regular savings account (which currently has a rate of just 0.42%, according to the ).

To earn the most interest on a CD, however, depositors will need to do their research and shop around for the best rate and terms. They should also strongly consider opening an account with an online bank or lender.

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Should you open a CD account online?

While it's possible to find a CD with a favorable rate and term with your local bank branch, you may improve your chances of getting a higher rate by opening an account online instead. Online banks — whether they're servicing a CD or a high-yield savings account — generally offer higher interest rates than banks with physical, brick-and-mortar locations.

Because these banks don't have to pay for the costs of maintaining a physical bank location, they can afford to pass on those savings to customers in the form of higher interest rates. But a better rate is just one benefit of opening a CD online.

These banks will also frequently forego any maintenance fees or penalties that you may otherwise have been saddled with by using a bank with an in-person location. These online banks can still provide access to a large ATM network, however, so you won't usually have to worry about fees if you use an unaffiliated ATM to access your account. 

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Other considerations

While a higher interest rate and minimal (or no) fees sound great, an online bank isn't for everyone. In particular, it may not be for you if:

You like in-person banking

There's nothing wrong with choosing to do your banking in person at a physical location. But if this is your preferred route, understand that you'll be giving up your personal connection by going with an online bank. This isn't to say that online banks can't still provide you with what you need. But the ability to have live, in-person conversations won't be there. 

You only want a short-term CD

Short-term CDs have multiple benefits, particularly in today's rate environment. But if you're planning on opening a short-term CD online, it may be difficult to collect your funds when the term ends. You'll have to request a check back, let it rollover and be extended for a new term, or link your existing, in-person bank with your online one to transfer the funds back to an account that you can access easily. This isn't impossible to do, but it could be tedious for a three-month CD term.

The bottom line

If your main goal with opening a CD is to secure the highest interest rate, then your best bet is to look online. By opening a CD with an online bank, you'll likely secure the highest rate and pay minimal (or no) fees and penalties. That said, the use of online banks isn't for everyone. Understand your comfort level — and your accessibility needs — before opening a CD online. . 

Edited by Angelica Leicht

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