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Best Short Term Savings Rate


I thought it would be useful to compare the best short term CDs with what you could get with an October purchase of Series I Savings Bonds. Until the end of October, you can purchase I Bonds and get a guaranteed return of around 5% for 14 months. This assumes purchasing the I bond at the end of this month and redeeming it in early January 2007. Refer to my previous post for more information on I Bonds and why the short term rate is guaranteed for this limited time.

Below are the approximate annual interest rates you could get for terms of between 11 months and 15 months.

The Ideal Rates - Buy Very Late, Redeem Very Early

The following rates and terms assume a purchase on October 31, 2005 and a redemption on the first day of October, November, December 2006 and January 2007.

11-month 4.51%
12-month 4.71%
13-month 4.87%
14-month 5.02%

Typical Rates - Buy Late, Redeem Late

To ensure that the bonds are purchased in this month, you'll have to buy at least a few days before the end of the month. Also, it's likely that you'll redeem the bonds a few days after the start of the month. If you purchase 10 days before the end of this month and redeem the bond 20 days after the start of the month, that will add about a month to the term. Based on this extra month, the terms and rates will be:

12-month 4.13%
13-month 4.34%
14-month 4.52%
15-month 4.67%

It's likely that your actual rate will be between these.

The Best Bank Short Term CD Rates

How do CD rates at banks and credit unions compare with these I bond rates? I first checked the best offerings from the online national banks. I then did a search of credit unions and local bank rates. Below is a list of what I found. I tried to keep the terms roughly around a year. All rates are in APY.

National Online Banks

Credit Union and Local Bank CD Specials
  • 5.25% - 14-month CD, $50K min (5% CD only has $5K min), MIT Federal Credit Union, Cambridge, Massachusetts (FOM)
  • 5.12% - 10-month CD, $5K min and $500 chk acct balance, Coastline Federal Credit Union, Jacksonville, Florida (FOM)
  • 4.63% - 15-month CD, $10K min, Greater Minnesota Credit Union, east-central Minnesota (FOM)
  • 4.57% - 15-month CD, ? min Milestone Federal Credit Union, Massachusetts/Virginia (FOM)
  • 4.50% - 14-month CD, ? min (VIP rate) Lake Michigan Credit Union, Grand Rapids, Michigan (FOM)

Longer Term But Worth Noting
  • 5.00% - 29-month CD, $10K min (includes jump option, requires Concerto Checking Account) First National Bank of Naperville/Brookfield, suburbs of Chicago

Except for two 5% credit union CD specials, the I Bond seems to be the clear winner. The main drawback of the savings bond is that no money can be redeemed within 12 months (October 2006 for this case). Bank CDs usually allow early withdrawal with a penalty. A big plus for savings bonds is that they are exempt from state and local taxes. Also, you can purchase them for as little as $50. Refer to TreasuryDirect for more info.
Anonymous   |     |   Comment #1
i-bonds have a penalty of 3 months interest (if cashed in the first 5 years)

not a huge deal, but worth noting

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