Sallie Mae CD Rates Review: Worth Your Investment?
You don't want your money just sitting there doing nothing.
Invest it in something that will help it grow -- like a certificate of deposit (CD).
As you look for the top CD rates available, you might come across Sallie Mae Bank.
Yes, the CD rates are rather impressive.
There are other factors to consider, such as minimum opening deposits and early withdrawal penalties.
If you’re looking to open a new CD, learn everything you need to know about Sallie Mae’s CDs before committing your money toward one of them.
CDs are able to offer interest rates that are much higher than the rates offered by other accounts, such as savings, checking, and money market accounts.
In fact, the elevated interest rate is the main draw of CDs, so you should always start by comparing interest rates when you’re looking at different CDs.
Sallie Mae runs its banking operations like an online bank.
This is good for people who want to get the best rate possible.
Brick and mortar banks are expensive to run because the banks have to pay rent and utility bills and hire employees to staff branches.
Online banks can centralize their operations, saving a lot of money. Online banks then pass the savings on to their customers in the form of low fees and high rates.
The only downside of online banks is that you can’t speak to someone face-to-face if you need help. You’ll need to settle for help by phone or e-mail.
Sallie Mae’s CD rates are very competitive, beating out many other online banks’ rates, regardless of the term that you select.
The rates easily beat brick and mortar banks’ offerings.
Many banks will vary the interest rate that they pay with the balance of your CD. This is good if you can deposit a lot of money, but people who can just meet the minimum will miss out.
Sallie Mae keeps it simple, offering the same rate to anyone who can open a CD. That means that the number one factor in determining your CD’s interest rate will be the CD’s term.
Early Withdrawal Penalties
CDs are a lot like savings accounts. They’re a great place to store extra money for the long term and offer interest on the money you deposit.
However, there is a key difference that you have to remember.
Opening a CD involves making a commitment to keep your money in the account for a set amount of time. This is known as the CD’s term.
You have to promise not to make a withdrawal from the CD until the term ends.
Sallie Mae offers a variety of terms for its CDs, including:
- 6 months
- 9 months
- 11 months
- 12 months
- 13 months
- 15 months
- 18 months
- 24 months
- 30 months
- 36 months
- 60 months
This huge variety of terms makes it easy to customize your CD with a term that works for you.
Take note of the CDs that have unusual terms (such as 11 or 13 months).
These are promotional CDs that have rates that can be quite different from the rates offered by other CDs with similar terms. Keep an eye out for these offers because you might be able to get a great deal.
When you open your CD, you might be tempted to opt for the longest available term to ensure that you earn the highest available rate.
Resist this temptation.
If you make a withdrawal from your CD before the term ends, you will have to pay a fee. This early withdrawal fee compensates the bank for breaking your agreement.
Sallie Mae bases its early withdrawal penalties on the original term of the CD.
The size of the penalty is calculated using the amount of interest you earn in a day.
- CDs with a term of 12 months or less: 90 days’ interest
- CDs with a term greater than 12 months: 180 days’ interest
This is the only way that you can lose money by making a deposit to a CD.
If you open a 24-month CD and make a withdrawal after 90 days, you’ll be charged 180 days’ interest.
You’ll forfeit all of the interest that you earned and pay the rest of the fee out of the principal.
Minimum Deposit Requirements
Many banks will not let you open a CD unless you can make an opening deposit of a certain, minimum amount.
Banks use the money that their customers deposit to finance other activities, such as lending. Your bank wants to make sure that the amount of money you can deposit to a CD is worth the effort of managing the account.
Unfortunately, the high minimum deposit requirements that many banks impose block people from opening CDs.
It can be difficult to get enough money together to open a CD.
People who can’t meet the minimum will have to settle for a savings account, which won’t pay the same interest rate.
Sallie Mae’s CDs require a minimum deposit of $2,500.
This is significantly higher than the minimums required by other online banks.
Even many brick and mortar banks have lower requirements.
If you don’t have $2,500 to spare, you should look for a CD from another bank.
If you want to deposit more than the minimum, don’t forget that CDs are insured by the Federal Deposit Insurance Corporation, but that the insurance has limits.
The FDIC will only protect up to $250,000 in your account.
If your balance exceeds that amount, any amount over $250,000 will be uninsured.
If you need additional protection, you’ll have to open a new CD at a different bank for the amount over $250,000.
Individual Retirement Accounts (IRAs) are savings vehicles that give people tax benefits if they start building a nest egg for retirement.
CDs held in IRAs are popular with many retirement savers thanks to their safe and predictable returns.
Unfortunately, Sallie Mae does not offer IRA CDs.
Traditional IRAs offer more immediate benefits.
When you make a contribution to a traditional IRA, you can deduct the amount you contribute from your income when you file your tax return. This will reduce your tax bill or increase the size of your refund.
You’ll pay income taxes when you withdraw from the account, balancing things out somewhat.
Roth IRAs offer deferred savings.
You must pay taxes on the money you contribute, but you will not pay taxes on any withdrawals. This includes withdrawals of principal and earnings. That means your future tax bills will be reduced.
What Happens at Maturity
When your CD’s term ends, the CD is said to have matured.
This is your chance to make withdrawals or changes without paying an early withdrawal fee.
Sallie Mae gives you a ten-day grace period to make changes after your CD matures.
Any withdrawals or changes during this grace period will not incur a fee.
If you wait until the eleventh day, your CD’s balance will be rolled into a new CD and you’ll have to pay an early withdrawal fee to make changes.
How It Compares
Sallie Mae’s CDs offer great interest rates, even when compared to other online banks. If you’re really after the best rates available, you should definitely consider opening an account with Sallie Mae.
Where its CDs fall sort is in the minimum deposit requirements. Many other banks have lower minimums. Unless you can commit at least $2,500 to a CD, you’ll need to work with another bank.
Regardless of the amount of money you can deposit and what you’re looking for in a CD, you should take the time to at least compare a few options.
When you’re comparing CDs from different banks, look at the following factors.
Start by comparing the interest rates of the CDs. Opt for the highest rate if all else is equal.
Also, make sure that the bank you’re working with offers a term that works for you. Some banks specialize in long-term CDs and others in short-term CDs.
Finally, take into account what happens when your CD matures. Make sure you have enough time to make changes so you won’t get locked into a new CD.
Though it might be best known as a lender, Sallie Mae’s banking products offer good value.
If you have the money available to deposit and you want to get one of the best interest rates around, you could be well served by a Sallie Mae CD.