Flexible CDs and Savings Accounts with Rate Guarantees

Certificates of deposit may seem like a bad idea when interest rates are so low. No one wants to be stuck in a low-rate CD. There's always a worry that you'll be stuck in the CD when interest rates start to shoot up. That is one risk, but there's another risk that rates may continue to fall. Back in 2009, most people probably didn't think we would still be experiencing falling rates in 2012.

There are a few banks that offer special flexible CDs and savings account promotions that can help reduce these risks.

Ally Bank

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. The only issue with this No-Penalty CD is that it can take two business days to receive the funds after you provide the closure instructions. I described my experience with this CD in my Ally Bank No-Penalty CD review.

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

CIT Bank is a new internet bank which just started offering internet CDs in October 2011. Two of CIT Bank's CDs are flexible CDs. They're called the Achiever CDs, and they have terms of 1 and 2 years. They have flexible 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. That hasn't been the case with CIT Bank. It has been keeping its rates competitive as compared to the regular CDs at other internet banks.

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 Achiever CD review.

Northpointe Bank

Northpointe Bank isn't an internet bank, but its CDs are currently available nationwide. They have special CDs called Compass CDs which have a unique feature. There is no early withdrawal penalty after the first half of the term. For example, if you open the bank's 60-month Compass CD, you can make a penalty-free early withdrawal after 30 months. If rates are still low in the second half of the CD's term, you can just keep the CD until its full maturity. If rates happen to rise, you can close the CD early without a penalty. I have more details in my Northpointe Bank CD review.

EverBank

Two important features of CDs that give them an advantage over money market accounts are a guarantee of a fixed rate for a period of time and a higher rate. Sometimes banks offer promotions that give their liquid accounts these features. That's what EverBank has done for new customers who open its Yield Pledge money market or checking account. New customers receive a guaranteed rate for 6 months in these accounts. After the first 6 months, the standard rates return. As I explained in my latest EverBank promotion review, this is a better deal than any 6-month CD that's available. Like a CD, it gives you a 6-month rate lock. However, unlike a CD, you have the liquidity of a money market or checking account.

The two downsides of this promotion are that the maximum deposit is capped ($100K for the checking and $50K for the money market) and customers must be first-time holders of these accounts to qualify. If you have or used to have these accounts, you can't qualify.

Flagstar Bank

Flagstar Bank has a promotion on its savings account that's similar to EverBank. Its rate is currently a little higher, but the rate guarantee rate is only 4 months instead of 6.

Other Banks and Credit Unions

Other banks and credit unions offer flexible CDs or liquid account promotions, but their rates are not currently high enough to make these features useful. Today's savings accounts or regular CDs would probably be better choices than these.

Capital One is still offering a 1-year rate guarantee for up to $100K on its Interest Online Checking Account. When I first reviewed this promotion last year, it used to be a good deal, but the rate has fallen considerably.

Airbanking (the new internet bank of MainStreet Bank) offers a 1-year no-penalty CD. It used to have a rate that was comparable to what Ally Bank offers, but now the rate is much lower.

Amboy Direct eSavings CD is 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.

Northwest Federal Credit Union offers 1-year and 2-year add-on certificates.

Other CD Strategies

One feature shared by all of these flexible CDs and promotional savings accounts 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 long-term CDs with mild early withdrawal penalties. My last review of this strategy was in my February post, Comparing Top Long-Term CD Rates After Early Withdrawal Penalties.