Are variable CD’s better than fixed CD’s?

When purchasing a certificate of deposit, you can choose whether to have a variable or fixed certificate of deposit rate on it. If you are wondering what you should go for, you should first establish what you need. Rates in the market are very unpredictable. One day they are down and one day they go way up. So, in dealing with certificates of deposit, you need take in mind whether you are going for a short term certificate of deposit over a long term one or vice versa. Another is that you have to consult with the institution that you are purchasing the certificate of deposit with about how they handle variable rates on it. As a consumer, it is important for you to know how they work with the ever changing rates in the market and incorporate it with certificates of deposits. This will give you an idea whether to go for a variable or a fixed rate.

Now, it would be advisable to get a fixed rather than a variable rate on a short term certificate of deposit because of the risk that it may have low rates throughout your term and you will not have enough time to get them up. It is much safer to get a fixed rate because you can get a good rate at the beginning of your term and have it until maturity. Whatever happens within that short term time frame, you will not regret it.

On the other hand, long term certificates of deposit can benefit from a changing rate because whenever it falls, there is no way for the rate to go but up. The period of time enables low rates to cook in the market a bit and eventually turn into a very high rate. But then again, this is a very bold move. If you are after the security of your funds and do not have the guts to gamble with rates in the market then you can get a fixed rate on your certificate of deposit. The only disadvantage though would be that there is nothing you can do when rates skyrockets before the maturity of your certificate of deposit.

So, the choice of having a variable rate over a fixed certificate of deposit rate depends on you as the owner of that certificate. Either way, you will not lose your original balance; it’s just that the amount that you will earn will greatly differ from these two types of certificate of deposit rates.