Discover Bank Savings Account and CD Review - Available Nationwide
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- Discover Bank's Certificates of Deposit
- AAA Member Rates
- Financial Review
- Searching for the Best CD and IRA Rates
Discover Bank continues to offer competitive rates on its savings account, CDs and IRA CDs. For those who might have been unsatisfied with Discover Bank in previous years, you may want to try them again. As I reported in February, they have made significant improvements in their online banking interface which simplifies many aspects of internet banking.
Discover Bank's online savings account rate continues to be one of the top for internet banks. The rate is 1.35% APY as of the morning of 7/30/2010. This has held since February of this year. It requires a minimum initial deposit of $500, but there is no minimum balance requirement and no monthly fees. In February I described Discover Bank's new internet banking features and its ACH transfer service in my Discover Account Center review.
Discover Bank's Certificates of Deposit
Like the savings account, Discover Bank's CD and IRA CD rates have remained near the top for internet banks. Some of the best rates as of the morning of 7/30/2010 include 1.50% APY for a 12-month CD, 2.25% APY for a 36-month term, a 3.00% APY for a 5-year term and a 3.50% APY for a 10-year term. Minimum deposit is $2,500.
For CDs with terms up to 5 years, Discover Bank's rates are a little higher than what Ally Bank offers. Ally Bank doesn't offer CDs with maturities over 5 years. That's one advantage of Discover Bank. Also, Ally Bank does not offer IRA CD rates. The main advantage of Ally Bank CDs is the low early withdrawal penalty of only 60 days of interest (see review).
Discover Bank's CD early withdrawal penalties are more inline with the average bank: 3 months of interest for under 1-year, 6 months of interest from 1 to 5 years and 9 months of interest for terms over 5 years. The penalty for terms over 5 years is actually lower than many other banks and credit unions. For example, both PenFed and Navy FCU have a 12-month penalty for their 7-year CDs. Note, Discover's early withdrawal penalty is only on the amount of principal withdrawn. Interest can be withdrawn without penalty at anytime.
In a previous post, a reader commented about a problem he had when he opened a Discover CD. The rate fell soon after he applied for the CD, and he received that lower CD rate. I asked the CSR this morning when the CD rate locks. According to the CSR, if you choose to fund a CD with a check or a wire transfer, the rate won't lock until they receive the funds. However, if you choose to fund it with an ACH transfer from an external bank account, you should receive the CD rate that was listed when you submitted your application.
Discover Bank has a pretty good FAQ on its CDs which can provide more details.
AAA Member Rates
AAA members can receive a 5 basis-point rate bump on the money market account and on all Discover CDs. I can't provide a website address since AAA has different websites for different regions, and not all regional AAA websites have a financial section. For some of the regional AAA websites, you should be able to find the Discover Bank section at AAA's website by selecting the financial link in the menu, and then selecting the "AAA Deposit Program" link. I've found these links at the AAA's websites for the Southeast U.S. region and for New York State. However, I don't see any financial link at AAA's Texas and California websites. I asked the CSR about this AAA bonus, and I was told that any AAA member regardless of where they live can apply at Discover Bank by phone even if you can't access the AAA Discover Bank webpage. You just need your AAA member number.
Discover Bank is a large internet bank with $63.1 billion in assets and $35.8 billion in deposits. In terms of size, it's on scale of ING Direct which has $91 billion in assets and $78.1 billion in deposits.
Discover Financial Services did receive TARP funds. According to the New York Times, they received $1.225 billion, and these funds have not yet been repaid. As a comparison, GMAC Financial Services received $7.5 billion. Update: I've been informed that the NYT list is out-of-date. Discover Financial Services paid back its TARP funding on April 21, 2010 (per SEC filing).
Discover Bank's ratings for safety and soundness are above average: 3½ stars (good) at BauerFinancial, 3 stars (performing) at Bankrate.com and an overall health score of 4 out of 5 at DepositAccounts.com (see our financial overview for Discover Bank). These ratings are based on 3/31/10 data.
Discover Bank has been a FDIC member since 1934 (FDIC Certificate # 5649).
Searching for the Best CD and IRA Rates
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