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Discover Bank Savings Account and CD Review - Available Nationwide

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Discover Bank

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 Note, Discover's early withdrawal penalty is only on the amount of principal withdrawn. Interest can be withdrawn without penalty at anytime.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.

Financial Review

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

To search for the best nationwide CD rates and the best CD rates in your state, please refer to the CD rates section of DepositAccounts.com. We also have a section for the best IRA CD rates.


  Tags: Discover Bank, CD rates, IRA rates, savings account

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Comments
9 Comments.
Comment #1 by Anonymous posted on
Anonymous
I can personally attest to the improvement in Discover's online banking.  If you are a member of AAA, you will get an additional 25 basis points on CD's.  However, you must enter through the AAA website.

8
Comment #3 by jzut (anonymous) posted on
jzut
Just did an ACH xfer a few days ago. VERY SLOW!! Took 3 days to xfer. Compared to Ally and Dollar Savings, 1 day. They say 1st day funds are debited, 2nd day clear Federal Reserve, 3rd day credited and posted. But they upgraded me to Premium Account because I opened last year( Dec. 2nd '09.) Opened @ 1.75% then went down now @1.49%. So I will stay with them.

3
Comment #4 by CapitalClimate (anonymous) posted on
CapitalClimate
AAII members also get a rate bump:

https://aaii.discoverbank.com/aaii/index.html

3
Comment #5 by tightwad (anonymous) posted on
tightwad
Can anyone confirm if you can still link 30 external accounts? Thanks

1
Comment #7 by teddyr (anonymous) posted on
teddyr
I've received an upgrade to a 1.50% account from Discover:

Dear                 ,

Congratulations! You were selected to receive a
promotional account upgrade to a Premium Savings
Account through 10/22/10. With a Premium Savings Account, you'll enjoy a higher yield.

More good news: You can keep the upgrade,
and the higher yield, if you deposit at least $500
to your account by 10/22/10

I'd assume that I'm not alone and that other depositors have similarly been upgraded. I hope that this rate holds.

 


4
Comment #10 by Maecl posted on
Maecl
Been with them since transfer from ETrade.  They are quick to take money from your linked account (next day) and very slow to credit it to your account.

3
Comment #12 by Anonymous posted on
Anonymous
Don't open an account with this bank.  I did a CD with funds to be pulled from 3 different accounts from 2 other banks.  They have been at it for close to 2 weeks and after hours on the phone chasing them up, they have gone through "we don't have the $685,000 that we removed from your other bank account", "we have the $275,000 that we pulled from another bank account and we are issuing you a cd for that amount rather than the total of the 3 accounts", "oops we don't know why the $275,000 that we claimed we have in your CD has disappeared".... 

You have to explain the entire history of this each time you call as you get a different call center person.  When I spoke to an account manager named Brian, he promised that he will call me back at a certain date and time to let me know what is going on.  I changed my appointments to stay home to wait for his call (there is no means for you to call him).  He never called.

I want to stop the process and give up on the account but my money is somewhere in their system - it just does not show that I have it in my account.

4
Comment #13 by Anonymous posted on
Anonymous
Can you open up CD with credit card - in distant past you could and it was charged as a purchase; not cash advance

1
Comment #15 by Jeanne (anonymous) posted on
Jeanne
I live in California and called the AAA/Discover account line @ 888-728-3097 (24/7). The CSRs are all friendly and helpful. I opened a CD account via ACH and even though it took a few days for the fund transfer, the rate was locked in at 3.06% APY for 5 years. Somehow the rounding after the 5 basis pt bump increased the APY from 3.00% to 3.06%, but who am I to complain?

While I do not intend to withdraw early, if I did and took the penalty after 18 months, I'd still get 2.05% APY.

1