Update 10/5/2009: Discover Bank has dropped their interest rates to 1.85% APY.

In the last few months, Discover Bank (NYSE: DFS) has offered some very competitive personal savings products including a new penalty-free certificate of deposit and a high-yield savings account that earns 2.00% APY.

Discover Bank’s online savings account requires a $500 minimum initial deposit to open an account but has no minimum balance requirement after that. Account holders can deposit funds via ACH electronic transfer, wire transfer or by mailing in a check. Funds can be withdrawn via electronic transfer, wire transfer or via an official bank check. The bank charges $20.00 for outgoing wire transfers and incoming wire transfers are free. Electronic transfers are free both ways as well. According to the bank’s FAQ, interest is compounded daily and credited monthly.

The bank also has an innovative “no-penalty” certificate of deposit that allows customers to open a CD that has no interest penalty if the customer cashes in the CD before its maturity date. Discover Bank is offering a 12 month no-penalty CD with a 1.95% APY. Their regular CD’s are currently yielding 1.94%. Discover Bank also has several other CD options with different terms varying from 1.00% APY for a 3 month CD or 3.78% APY for a 10 year CD.

Discover Bank has been FDIC insured since 1911. Initially, it operated under the name of Greenwood Trust Company, and joined the Discover Financial Services family in 2000 and rebranded itself as Discover Bank. Currently, Discover Bank manages about $25 billion in deposits. Discover Bank currently has 3 star rating according to BankRate.com’s “Safe and Sound” rating system.