With interest rates so low, certificates of deposit can be worrisome. No one wants to be stuck in a low-rate CD if interest rates shoot up. Some day in the future, rates will rise, and they could rise quickly. A few banks have come out with some new variations of the standard CD which are intended to reduce some of these worries. I've come across four internet banks that currently offer these types of CDs.
The first one is the well-known Ally Bank. It offers two types of flexible CDs. The first is the 11-month No-Penalty CD. For those who prefer CDs with maturities under 1 year, this is a good deal. You have the option to close the CD any time from 7 days to 11 months. So unless you can get a higher rate, I don't see a reason to choose a 3-month or 6-month CD instead of this 11-month No-Penalty CD.
Ally Bank also offers two Raise Your Rate CDs: 2-year with one bump-up option and a 4-year CD with two bump-up options. These CDs allow you to bump up the interest rate to the current Raise Your Rate CD if interest rates rise. This can help reduce worries of being locked into a low-rate CD when interest rates start going up. There is a risk that Ally won't keep these CD rates competitive. If that occurs, the bump-up feature won't be useful.
CIT Bank is a new internet bank which just started offering internet CDs in October. One of CIT Bank's CDs is a flexible CD. It's called the Achiever CD. It's a 1-year CD that has two non-standard features: 1) allows one additional deposit during the term, and 2) a bump-up option that allows you to take advantage of a higher rate.
One common issue for flexible CDs is that you have to sacrifice some interest rate in return for these flexible features. Currently, that's not the case with CIT Bank. The 1-year Achiever CD APY of 1.15% matches the highest 1-year CD rate that's nationally available at a credit union or a bank. Both Melrose Credit Union and Doral Bank Direct (the best credit union and bank) offer 1.15% APY on their 1-year CDs as of 11/21/2011.
The only downside with CIT Bank's Achiever CD is that it has a high minimum deposit requirement of $25,000. I have more details in my CIT Bank CD review.
Airbanking is a new internet division of MainStreet Bank. Several of its internet CDs offer competitive rates. One of its CDs is a 1-year No-Penalty CD. This 1-year CD rate used to be competitive as compared to other 1-year CD rates, but it has fallen quite a bit in the last month. The rate is 0.70% as of 11/21/2011. This is still a good rate if you compare it to most 3-month and 6-month CDs, but Ally Bank's 11-month No-Penalty CD is currently a better deal. I have more details in my Airbanking CD review.
Amboy Direct has a flexible CD called eSavings CD. It's a 1-year add-on CD with some limitations. You are only allowed to make additional deposits during the first six months of the term. The maximum balance is $100,000. Minimum opening deposit is $100. The rate is a little low at 1.00% APY as of 11/21/2011. However, if you compare it to 6-month CD rates, it's very competitive. Why compare it to a 6-month CD? You could open it with just $100. Just before 6 months into the term, you could then make a big add-on deposit. If interest rates go up, you don't have to add to it. If interest rates fall, this becomes an even better deal. I have more details in my Amboy Direct eSavings CD review.
Other CD Strategies
One feature shared by all of these flexible CDs is a low rate compared to the best rates you can get for 5-year terms. Instead of using these flexible CDs, you may earn more interest with a CD ladder using 5-year CDs. You may also want to use a strategy of using long-term CDs with mild early withdrawal penalties. I described this strategy with a few banks and credit unions in this October CD comparison review. There are some risks in this strategy as I described in my inflation dangerous bank review and in my review of the risks and benefits of long-term CDs.