Understanding the difference between callable CDs and regular CDs

Callable CDs are more or less like traditional CDs, where the interest rates are fixed for the entire term of the CD. However, the only difference here is that the banks that issue these callable CDs can ‘call’ the CDs for the amount accrued before the CDs mature. Whereas in case of traditional CDs the banks that issue the CDs cannot call the CDs before the CDs mature. The callable date is set for every callable CD. This date is set either by the bank or the credit union that issues the CD and the CD may be called during this date, if the bank chooses to.

Once the issuer decides to call the CD, it will take possession of the CD and the investor will be paid the full principal as well as the interest that has been earned. The duration for such callable CDs will generally be listed for a particular period – may be ten months. In such cases, the banks may decide to call the CD once in every 10 months.

The term or the maturity date is the time period for which the funds are kept in the CD. If the CD has a longer maturity date, the rate of interest that is offered will be much higher. So, it is important to know the difference between the maturity date as well as the call date. For instance, a 3-year callable CD will have a 3-year call date, whereas the maturity date may be even 15 years.

It is important to understand the financial markets before investing in CDs. In general, banking institutions will call CDs depending on the rising or falling interest rates. In case the bank feels that it will benefit by just paying off its investors and calling the CD, it will certainly do so. As an investor, if you feel that the rate of interest is likely to remain consistent or even increase, then it will certainly make sense to invest in a callable CD. However, if the interest rates are likely to fluctuate or even fall then the banks and financial institutions are likely to call your CD. This is a gamble that you will have to take as an investor. Interest rates in callable CDs are generally good. So, you can certainly invest in callable CDs and expect to receive the principal amount and the interest before the maturity period of the CDs.

Investors must carry out some research before investing in CDs. Personal needs have to be carefully considered before investing in CDs because investing in CDs means blocking your money for a particular period of time. However, this is one of the best options if you wish to see your money grow. The biggest difference between callable CDs and traditional CDs is the fact that callable CDs tend to give the issuer total control over the money that is invested as they can call the CD at any point in time before it matures. Whereas, in case of traditional CDs, the investor can get the principal amount and the interest after it matures.