If you're looking for a short-term CD with maturities under 1 year, you will probably be very disappointed. The short-term CD rates are so low that it's hard to justify a CD rather than an internet savings account. The only benefit of the CD is that you don't have to worry about the rate falling during the term.
If you still want a short-term CD, it's hard to find one that's better than Ally Bank's No-Penalty 11-month CD. The rate isn't that great (1.20% APY as of 2/9/2011). However, if you compare that to the best rates available for 3-month, 6-month and 9-month CDs, it's very competitive. Here are the best nationally available short-term CD rates as of 2/9/2011:
- 1.01% APY 3-month CD at Self Help Credit Union
- 1.15% APY 6-month CD at Metropolitan National Bank
- 1.15% APY 9-month CD at TotalBank
There's no reason to pick these short-term CDs rather than Ally Bank's No-Penalty CD based on the current yields. With the No-Penalty CD, you can close the CD early any time after the first 6 days of funding the CD. At closure, you'll receive the full balance and accrued interest without any early withdrawal penalty. So this effectively gives you any maturity that you want with terms from 7 days to 11 months.
Better Deal Than The No-Penalty CD
If you think it's likely that you will leave the CD untouched for at least 4 months, there's even a better choice. Ally Bank's 5-year CD has only a 60-day early withdrawal penalty. Its rate is 2.39% APY as of 2/9/2011. So if you close the 5-year CD after 120 days, you'll lose half the interest. Thus, the post-penalty yield becomes around 1.20%. Each additional day that you keep the money in the CD, the yield will go up. Here are some additional post-penalty rates for other terms:
- 1.60% at 6 months
- 1.87% at 9 months
- 2.00% at 1 year
- 2.20% at 2 years
- 2.26% at 3 years
- 2.39% at 5 years (no penalty)
As you can see, these rates are much higher than what you can get with short-term CDs at other banks. Allan Roth in his CBS MoneyWatch blog post has a review of this feature and his approach of maintaining multiple Ally 5-year CDs. As I mentioned last year when I first reviewed this Ally CD 60-day penalty, Ally doesn't allow partial withdrawals. So it makes sense to open multiple small CDs rather than one big CD. So if you need some money, you don't have to close the one big CD.
I compared Ally's 5-year CD with some other high-yield long-term CDs in this Ally and PenFed review post. I don't have any updates to the potential risks of long-term CDs that I discussed in this November blog post. This includes the risk that the bank could increase the early withdrawal penalty on existing CDs. I've received an assurance from Ally's public relations director that the penalty would not be increased on existing CDs.