Banks Sweeten CD Rates to Attract Cash

Considering the volatile state of financial markets, locking your money away in a short-term certificate of deposit until things calm down isn't a bad idea. Given that some banks eager to shore up balance sheets are now offering much higher yields than usual to attract savers, CDs are even starting to look like a great idea.

The average overnight rate on a six-month CD is 3.19%, according to Bankrate.com. On a one-year CD it's an even better 3.68%. That's certainly more appealing than stocks, which have lost 18% so far this year. CDs also top money-market mutual funds, which recently offered an average seven-day yield of 2.04%, according to Morningstar. Of course, funds in a money market are available immediately. You'd need to pay a penalty to tap cash in a CD early, but what you give up in flexibility you make up for in yield and, perhaps more importantly, peace of mind.

In light of the upheaval in the banking sector -- Washington Mutual (WM) was the latest victim, accepting a hastily arranged takeover by J.P. Morgan Chase (JPM) late Thursday -- we'd stick to the most stable big banks: Chase, Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C). We looked into offers at each of these banks online to find their best yield on CDs with maturities of one year or less. Citi tops the list at 3.25% and a minimum deposit of $500 for a nine-month CD. (See chart below.) Keep in mind as you research that yields change daily and vary by state. 

If you're willing to try smaller and potentially less stable banks, Bankrate.com tracks the highest yields nationwide. For instance, H&R Block Bank in Kansas City, Mo., offers a 4.26% yield on a six-month CD, and GMAC Bank in Midvale, Utah, offers 3.9% on a nine-month CD.

Yields aside, make sure any CD you buy is FDIC-insured, a big benefit of putting money in a bank as opposed to the markets. Even though the Treasury Department came up with a plan to offer temporary insurance on money-market mutual funds, it only applies to ones that opt into the program and to money in funds as of Sept. 19. In other words, new deposits are not covered.