Bank of America's CD rates are low because the bank prioritizes customer deposits through other products and doesn't need to compete aggressively on savings rates
Bank of America sets CD rates based on what it costs to borrow money elsewhere, what competitors are offering, and how much deposit money it already has. Right now, BofA's CD rates sit well below what online banks and credit unions offer—often 0.5 to 1.5 percentage points lower. A one-year CD at Bank of America might pay 4.35%, while an online bank pays 5.10% for the same term. That gap exists because BofA doesn't need to pay more: it has a massive customer base, a nationwide branch network, and customers who stay for checking accounts, mortgages, and credit cards even if the savings rate is mediocre.
The bank also funds itself through deposits in checking and money market accounts, which pay even less than CDs. When a customer keeps money in a non-interest checking account earning 0.01%, BofA keeps the spread—the difference between what it pays you and what it earns lending that money out. CDs are a smaller part of the bank's funding strategy, so there's less pressure to make them attractive.
Key Takeaways
- Bank of America's CD rates are typically 0.5 to 1.5 percentage points lower than online banks and credit unions offering the same term.
- BofA funds itself primarily through checking and savings accounts that pay almost nothing, so it has less incentive to compete on CD rates.
- The bank's size, branch network, and existing customer base mean it can keep rates low without losing deposits to competitors.
- You will earn significantly more money over the CD term by moving your deposit to an online bank, even after accounting for any early withdrawal penalties at BofA.
- If you need branch access or want to keep all accounts in one place, the convenience may be worth the lower rate—but the math should be explicit.
How bank size and customer loyalty affect CD pricing
Large banks like Bank of America have what's called a deposit franchise—a stable base of customers who keep money there regardless of rate. These customers have direct deposit set up, a mortgage with the bank, or simply inertia. They don't shop rates; they keep their savings where their checking account is. That loyalty means BofA can offer lower rates and still collect deposits.
Online banks have no branches and no existing customer base. They must compete entirely on rate. A customer choosing between BofA and Ally Bank will pick Ally if the rate is meaningfully higher, because there's no other reason to stay. BofA knows this and prices accordingly: it can afford to lose some CD shoppers to online banks because most customers won't bother to move money.
Credit unions operate on a membership model and often prioritize member returns over profit margins. They also have lower overhead than national banks. Both factors allow them to offer rates closer to online banks, sometimes matching them.
What Bank of America earns from your CD money
When you buy a CD, the bank lends that money to other customers or invests it. If you lock in 4.35% for one year and BofA lends that money at 7%, the bank keeps 2.65%. That spread is the bank's profit on your deposit. The lower the rate BofA offers you, the wider the spread it keeps.
BofA doesn't need to narrow that spread to attract CD money because it already has enough deposits flowing in from checking accounts and savings accounts. If the bank raised CD rates to 5.5%, it would shrink the spread and reduce profit on every CD sold. The bank would only do that if it desperately needed deposits—which it doesn't.
This is why CD rates move slowly at big banks even when the Federal Reserve raises rates. The Fed sets the benchmark rate, but banks choose how much of that increase to pass on to savers. BofA passes on less because it can.
Comparing the actual cost of staying with Bank of America
The difference between BofA's rate and a competitor's rate compounds over the CD term. On a $10,000 CD:
| Term | BofA Rate | Online Bank Rate | Difference Over Term |
|---|---|---|---|
| 1 year | 4.35% | 5.10% | $75 |
| 2 years | 4.50% | 5.25% | $156 |
| 3 years | 4.60% | 5.35% | $241 |
On larger amounts, the gap widens. A $50,000 CD loses $375 to $1,205 depending on term. That's real money—money you could have earned by moving the deposit.
If you need to withdraw early, BofA's early withdrawal penalty varies by term: typically 150 days of interest on CDs under one year, and up to 365 days on longer terms. Check your specific CD's terms before opening. If the penalty is steep and you think you might need the money, the rate gap becomes even more important to calculate.
When Bank of America's CD might still make sense
If you have a large deposit and want to split it across multiple banks to stay under the FDIC insurance limit of $250,000 per depositor per bank, BofA is one place to park money. The low rate is a cost of diversification, not a reason to choose BofA over another bank in the same tier.
If you use BofA for checking and want to move money between accounts without a transfer delay, the convenience of having the CD in the same bank might be worth a small rate penalty—but only if the penalty is small. A 0.5 percentage point difference is arguably worth it for convenience; a 1.5 percentage point difference is not.
If you're a Preferred Rewards member (BofA's loyalty program), you may receive a small rate bump on CDs. Check your account to see if a higher rate is available to you. Even with the bump, BofA's rates typically remain below online competitors.
How to find better CD rates
Online banks like Marcus, Ally, and American Express Personal Savings consistently offer rates 0.5 to 1 percentage point higher than BofA. Credit unions, especially those you can join through your employer or community, often match or beat online banks. Use a rate comparison site to see current offers, but verify the rate on the bank's own website before opening an account—promotional rates sometimes apply only to new customers or specific deposit amounts.
When comparing, check the early withdrawal penalty and the minimum deposit. Some banks require $500 or $1,000 to open a CD; others have no minimum. A lower rate with no minimum might be better than a slightly higher rate with a $10,000 minimum if you have less to deposit.
If you want to stay with BofA, ask a banker whether you may have access to for any rate bump through Preferred Rewards or other programs. It won't close the gap with online banks, but it might narrow it slightly.
Frequently Asked Questions
Will Bank of America's CD rates go up if the Fed raises rates again?
BofA will raise rates, but not by the full amount of the Fed increase. The bank will pass on enough to stay competitive with other large banks, but online banks will likely get the benefit first and by a larger margin. If you're waiting for rates to improve, moving to an online bank now captures the higher rate immediately rather than waiting for BofA to catch up.
Is my money safer in a Bank of America CD than an online bank CD?
No. Both are FDIC-insured up to $250,000 per depositor per bank. The insurance is the same whether the bank has branches or operates online. Your money is equally protected at Marcus, Ally, or Bank of America.
Can I move a CD from Bank of America to another bank without penalty?
No. Once you open a CD, you're locked in for the term. If you withdraw early, you pay the penalty. You cannot transfer the CD itself to another bank. You would have to withdraw the money (paying the penalty), then open a new CD elsewhere. Calculate whether the rate difference over the remaining term justifies the penalty before you do this.
What if I need the money before the CD matures?
You'll pay an early withdrawal penalty. At BofA, this is typically 150 days of interest for shorter terms and up to 365 days for longer terms. Read your CD agreement to know the exact penalty. If you think you might need the money, a shorter-term CD or a high-yield savings account (which has no withdrawal penalty) might be better than a CD at any bank.
Do Bank of America's CD rates ever match online banks?
Rarely, and only briefly. When the Fed raises rates sharply, BofA sometimes matches competitors for a short window to attract deposits. These promotional rates usually expire after 30 to 90 days. If you see BofA's rate matching an online bank, check whether it's a promotional rate and when it expires.