Bank of America Certificate of Deposit (CD) Rates Review

Bank of America CD Accounts
Bank of America CD Accounts

There's more than one way to save a dollar. A savings account is one option. Certificates of deposit are another.

But how does a CD work anyway and what are they good for? It's actually pretty simple.

When you open a CD account, you commit to saving your money for a set period of time. During that time frame, your money earns interest.

When the CD matures, you can withdraw your savings, plus the interest, or roll it into a new CD.

CDs can be a good fit if you've got a long-term savings goal in mind. The question is, which banks CD should you choose?

Bank of America is one of the nation's largest banks and it offers savers CDs with flexible terms.

If you've got a savings goal you're working towards, in this review learn whether a Bank of America CD is the best place to park your money.

Bank of America CD Rates

When you're trying to save money, you want to make sure you're getting the most interest possible.

Bank of America tiers their CD rates by term and by the amount you save. CD terms range from one month to 120 months.

The longer the CD term and the bigger your CD deposit, the higher your rate.

Compared to other brick and mortar banks, Bank of America's rates are fairly similar.

That doesn't mean, however, that these are the best rates you can earn.

Higher CD rates found elsewhere

If you're willing to sacrifice the convenience of being able to visit a branch, an online bank could give you more bang for your buck where CD rates are concerned.

Online banks generally have lower overhead costs.

That means they can pass the savings on to their customers in the form of fewer fees and better yields on deposit accounts.

You can check out how online bank CDs stack up against what Bank of America offers a little later on in our review.

Opening a Bank of America CD

As you compare CDs from different banks, one thing you have to consider is the minimum deposit.

At some banks, it's low or even nonexistent. At others, it's on the higher side.

Bank of America meets savers in the middle and sets the initial deposit for a CD at $1,000. If you have more to save, you could consider a Featured CD.

How much you can deposit

These CDs require a $10,000 minimum deposit. You have to commit to a 12-month term but you can get a slightly higher annual percentage yield on your savings, compared to Bank of America's standard CDs.

Again, however, that $10,000 could land you an even higher rate at an online bank.

If you're wondering whether you can add more money to your CD once you open it, the answer is no. While some banks have add-on CDs that allow you to continue adding to your savings over time, Bank of America doesn't offer that benefit.

Is There a Penalty for Early Withdrawals?

The premise of a CD is that you're saving that money for a set amount of time.

That's why a CD is generally better for saving cash you don't need right away.

Many banks charge an early withdrawal penalty if you take money out of your CD early and Bank of America falls into that category.

If you get hit with a penalty, you sacrifice some of the interest you've earned.

The amount of interest depends on the length of the CD term.

The number of days of interest you lose for an early withdrawal increases the longer you have the CD.

Bank of America CD Early Withdrawal Penalties

CD Term Early Withdrawal Penalty
Less than 90 days All interest or 7 days of interest, whichever is greater
90 days to 12 months 90 days of interest
12 - 60 months 180 days of interest
60 months or longer 365 days of interest

How to avoid paying early withdrawal penalties

There are two ways to avoid the early withdrawal penalty. The first is to simply avoid putting any money you think you might need in the short term into a CD.

If you've got an emergency fund, for example, you may be better off sticking that in a savings account.

That way, you have convenient access to your money without fear of a penalty.

The other option is to split your savings up via a CD ladder.

A CD ladder is a group of CDs with varying maturity dates. Ideally, these maturity dates are staggered so they mature on a rolling basis.

For example, you could save in five CDs with terms that are three months apart.

The advantage of a CD ladder is flexibility.

If CDs are maturing on a regular basis, it's easier to withdraw money from one of them if you need to, without having to face a penalty.

Does Bank of America Offer an IRA CD Option?

IRA CDs are a specific type of CD account. This kind of CD merges the tax benefits of an individual retirement account with the features of a CD.

Bank of America offers savers two IRA options: a savings IRA or an investment IRA.

The investment IRA is a typical retirement investment account. You can use it to invest in stocks, bonds or mutual funds through Merrill Edge.

The savings IRA is an IRA CD. You can choose a Featured CD or a standard CD for your IRA savings.

The same interest rates apply, based on the CD term and your deposit amount. With these CDs, the rate is fixed for the entire CD term.

What you need to know about IRA CDs

The minimum deposit for the standard IRA CD is $1,000. The deposit doubles to $2,000 for a Featured IRA CD.

Bank of America also offers variable rate CDs for IRA savers. With these CDs, the rate is tied to an index rate.

As this index rate goes up or down, the rate you earn on your savings moves in tandem.

The minimum deposit for these CDs is much lower, at just $100.

With all of Bank of America's IRA CDs, you can choose from a traditional or Roth IRA.

Traditional IRAs offer the potential for a tax deduction on contributions. You would, however, pay ordinary income tax on qualified withdrawals.

Roth IRAs don't give you the benefit of a tax deduction for contributions. The upside is that any qualified withdrawals are 100% tax-free.

What Happens When Your CD Matures?

Every Bank of America CD is automatically set up to renew once it reaches maturity.

If you do nothing with your CD, it rolls over into a new CD with the same term, at the current effective interest rate.

There is a grace period in which you can make changes to your account.

For example, you could add more money to the CD or choose a longer or shorter term.

Bank of America sends out a written notice 20 days prior to the CD maturity date. That way, you have time to decide what you'd like to do with your account.

Bank of America CDs vs. Online Bank CDs

Online banks increasingly give traditional banks a run for their money when competing for savers' business.

Being able to earn higher rates on savings is a big part of their appeal.

Take a look at these three online CD alternatives:

Synchrony Bank CDs

Synchrony Bank CD terms range from three years to five months. Rates are tired by the term length and the amount saved.

It'll cost you more to open a Synchrony Bank CD, versus one with Bank of America. The minimum deposit is $2,000.

Synchrony Bank offers both regular CDs and IRA CDs, which is good if you have multiple goals in mind.

You can also ladder your CDs to maximize your savings and interest earned.

Discover Bank CDs

Like Bank of America, Discover Bank also features CDs with terms of up to 10 years.

CDs have tiered rates that increase as the length of the CD term increases. The catch is that you'll need at least $2,500 to open your CD account.

An IRA CD option is available if saving for retirement is a priority.

Regardless of whether you choose an IRA CD or a regular CD from Discover Bank, the rates are significantly higher than what Bank of America offer's.

Ally Bank CDs

Ally Bank gives you more ways to save than just a high yield savings account.

Their CDs come with terms ranging from three months to five years and one great thing is that there's no minimum deposit required.

That makes them a good choice for savers who don't have a huge chunk of change to get started with.

Ally's CD rates are tiered.

The more you save in a CD, the higher the rate. Compared to other online banks, the rates are some of the most competitive around, especially if you've got $25,000 or more to save.

Final Verdict

A Bank of America CD may sound good if you're already a Bank of America customer and you don't want to have accounts at multiple banks.

They're not necessarily the best choice, however, if maximizing interest is your goal.

If you're comparing CDs purely based on interest rates, the online banks are the clear winners.

Opening a CD online may require the extra step of linking your account from another bank to transfer funds but it's worth the trouble if you want to earn more interest in the long run.

More: Best CDs of the Year

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