CD Basics and Things to Consider in Buying a CD

Certificates of Deposit, otherwise known as time deposits are savings certificates offered by banks, financial institutions or credit unions to their consumers. CDs are the same as savings accounts in that they are insured by the FDIC as well as the NCUA and that they earn interest yields. The difference however, lies in the accessibility of funds and the rates of interest.

CDs require a fixed term at which consumers should leave their money in the bank. That way, the banks will be able to use this money for their purposes and will in turn give a higher interest rate as compared to a savings account. Savings accounts allow for interest yields that are lower than time deposits yet consumers are able to withdraw their money with ease. CDs on the other hand hold maturity periods that may range from 3 months, 6 months, and a year or up to 5 years. During the applied maturity period, the money should not to be withdrawn; otherwise consumers will be dealt with penalties.

Most often, the longer the time period and the larger the principal amount, the higher the interest rate; but this does not always apply to each and every institution and at any time. A drawback though with long terms may result in your failure to apply for higher interest rates that go with a rising economy.

Different financial institutions offer different rates or promos for CDs to their consumers. It all depends on the consumer to find the best rate they are most comfortable with. The first impulse is to choose your trusted bank or your main bank for your deposits but it is relevant that you find other banks or even brokerage firms that could give you higher yields.

Shopping for the Best CD Rates.

One way to shop for the best CD rates is to start looking online. Search in websites of different banks regarding their offers for CD rates or in independent websites that compare CDs of different banks. However, you should also be careful with these websites since they may not fully disclose the terms regarding the CDs. The best way may be to personally contact or visit the bank in order to fully understand their terms and conditions.

One other way is to shop with a brokerage firm. Financial advisors may know the best CD rates around town so if you are serious with finding the best offers, you could opt for brokerage firms. Caution should still be observed since there are risks that may come with every deal. If you do not know the terms, you might end up jeopardizing your funds instead.

Check out credit unions also. Their offers could be different from banks.

Important Things to Consider in Opening a CD.

How much will you be able to invest? Remember that the larger the principal amount, the higher the interest yield though some banks require a minimum principal amount, so make sure you are ready to deposit that amount of money.

How long can you go without your money? It is relevant for you to understand how long you will be able to last without the money that will go into your CD for you to know what term to apply for. The general rule applies, that is the longer the time period, the higher the interest though some CDs with short maturity dates provide higher rates of return so you have to be diligent with your researches.

What are the potential risks? Know the penalties in cases wherein you withdraw your cash before the maturity ends.

How will you receive the interest? Some banks allow the interest to be mailed as checks or transferred to another account.

How much do I know about CDs as a whole? Education is still your best armor. You should not engage into something that you have not researched well enough for you to avoid regretting your decisions in the end.