For many people, especially those who are risk-averse, a certificate of deposit, or CD, is a great savings option. They can be federally insured like a regular savings account, yet they will pay higher interest—the best of both worlds. You can choose how long of a term you want, from three months up to 20 years. The longer-term, the higher the rate. But be careful. If you want to take your money out early, you will pay the penalty. Usually, a considerable amount of interest will be lost. Suppose you want to find the best certificates of deposit interest rates. In that case, you can easily search online at a website called Bankrate.com, which compares the rates of thousands of financial institutions all around the country.
Before you go out and buy a CD, there are some questions you need to ask whatever institution you are buying from:
- Ask when the CD will mature and get the maturity date in writing. If you’re not careful, you could find that you’ve tied up your money for 20 years! Also, what will your deposit amount need to be to purchase the CD? Generally, the larger the amount and the longer the term, the higher the interest rate.
- Make sure you are clear on the interest rate and how it will be paid. You want to know if your rate is fixed or variable, and you want that information in writing. Will the interest be paid monthly, twice a year, etc.? If the CD is a variable rate, make sure you are clear on how and when the rate will adjust, and again, get it in writing.
Something to keep in mind: if your institution gives you the option of receiving interest payments during the term of your CD, your total return on your investment will go down since the interest you are deducting won’t be compounded. You may decide it makes more sense to keep your interest in the bank and let it compound if the bank offers you that option. No matter which option you choose, you will probably have to decide when you first open your CD, and you won’t be able to change your mind afterward.
- Non-insured CDs usually pay a higher interest rate, but you will want to be careful. One of the biggest advantages to CD’s is the fact that they are a Federally insured investment. Why give that option up for a little more interest when you could lose it all? It would help if you thought long and hard before you bought a non-insured CD.
If you want the highest-earning yet safest investment you can find, a CD might be a great option for you. Just remember that the certificates of deposit interest rate are only part of the equation. You need to make sure you fully understand all the aspects of whatever type of CD you buy before you buy. You can safely earn some decent money, but you will pay if you have to close your CD out early.
According to Bankrate.com, specifically https://www.bankrate.com/banking/cds/cd-rates/, interest rates on CDs may not appeal to most. Consider a minimum $1,500 deposit; the best-published rate for a one-year CD is 0.70%. Not exactly what you may wish to consider when you think you can open a savings account at https://www.marcus.com with no minimum and receive an interest rate of 0.50%.
If you wish for something a little more long-term, the best CD is a $1,000 minimum that pays 1.15% on https://www.bankrate.com/banking/cds/cd-rates/. If you would prefer something similar right now that has a fixed interest rate of 0.00% and tied to inflation that resets every six months and is currently paying 3.54%, consider an I Bond from https://www.treasurydirect.gov/.
If you need assistance or have any questions, feel free to reach out to me directly or contact any qualified fee-only Registered Financial Consultant. Though based in Nashville, Tennessee, I offer financial advising services throughout the country.
