Discover CD rates are some of the best in the business, accompanied by flexible term lengths, no additional fees and a streamlined online application process. When you compare the APY rates you can earn at Discover with those of traditional banks — it’s no competition. While a higher than normal minimum deposit may serve as a barrier to entry for some, you are rewarded with impressive returns.
Discover Bank, founded in 1911 and with its headquarters in Delaware, is most famously recognized as a credit card provider. However, the company offers many other great banking products that have propelled it to be the 27th largest bank in the U.S., according to the Federal Reserve.
Discover Bank, Member FDIC at a glance
|Bank||Minimum Deposit||1-Year APY||3-Year APY||Penalty|
|Discover||$2,500||.90%||.95%||180 days of interest for 12 and 36-month CDs|
What we like about it
Rates. Rates. Rates. Discover Bank has some of the best industry-leading APY rates on its CD products, which can’t be ignored. What’s even more impressive is the high rates start on shorter-term CDs. A 3-month Discover CD has an APY of 0.25%, which is higher than many traditional banks offer on five and 10-year CDs. As you reach the one-year mark, those rates jump to .90% APY and continue growing until capping out at 1.05% at five years.
Things to consider
One of the bigger drawbacks of a Discover Bank CD is the minimum deposit required to open an account. Generally, online banks are big proponents of low or no minimum deposits with these types of accounts. However, Discover Bank breaks the mold requiring a $2,500 minimum. This is even higher than some traditional banks like Bank of America and Chase Bank, which only require a $1,000 minimum CD investment.
What you need to know
Discover Bank CDs are offered with term lengths as short as three months and extending to a maximum of 10 years. Rates for these CDs span from 0.25% in the shortest terms and slowly grow to a maximum of 1.05% for a five-year CD.
Compared to other banks, these rates are hard to beat. A three-year CD with Chase Bank will only earn an APY between 0.10% and 0.20%, depending on the amount you invest. With Discover, three-year CD is .95%.
As is standard across the industry, Discover CDs don’t carry any fees to apply for an account, open an account or maintain an account. You also don’t need to be an existing Discover customer to open an account. Feel free to conduct your other banking elsewhere and use Discover for its impressive APY rates or move all your banking needs over — both options are available.
Early withdrawal penalties
Discover Bank has some of the more specific early withdrawal penalties outlined on its website. Where most banks and credit unions have two-to-three tiers of penalties, Discover Bank has five. This may help some people and may hurt others that have to withdraw early, depending on where you fall in the time scale.
Interest penalties are three months of interest on CDs under 12 months; six months interest on CDs one to four years; nine months interest on CDs four-to-five years; 18 months interest on CDs over five-to-seven years; and 24 months of interest on the longest CDs over seven years.
Compared to the industry, the penalty on CDs over five years is a bit higher. For example, if you have a 10-year CD and need to withdraw your money after six years, you are going to incur a 24-month interest penalty. With another bank like Capital One, the penalty would only be 180 days (six months). While you should never take out a CD with plans to withdraw your money early, it’s important to be prepared.
Other CD products
Currently, Discover Bank CD rates only come with one type for its customers to invest in. This CD can be taken out as a standard investment or included in an IRA portfolio. Discover Bank does not offer higher CD rates based on the amount of investment, which is where many other banks have various products available.
There are no rate guarantees available at Discover Bank outside of the guarantee you receive with a CD account. Whatever rate you receive when you open your account will be the guaranteed rate of return earned for the entire duration of your investment.
How do I pick the best CD?
Choosing the right CD to invest in is critical due to the penalties involved for early withdrawal. If you choose incorrectly, you could miss out on returns or put yourself in a less than ideal position.
What should you consider when picking out the best CD? First, make sure any CD you are going to invest in is FDIC or NCUA insured. This should be a deal-breaker if it’s not. Next, find all of the CDs with the term lengths you’re looking for and an account minimum you can afford. Once you’ve narrowed those down, start comparing based on APY rates, fees and any other potential perks. Ultimately, the decision should be about producing the most out of your investment, no matter the length.
The bottom line
Discover Bank CDs may be a great option for investors looking to get the best rates at a well-established bank. The higher deposit minimum of $2,500 may be a deterrent for some, but if you can meet the minimum, you can enjoy some seriously attractive rates. Early withdrawal penalties may be better on shorter-term CDs but are higher on longer-term CDs than comparable brands. Ultimately, if you’re able to meet the minimum and don’t have plans to touch your money before the CD matures, Discover is an ideal option.