| For a lot of people, especially those who are risk adverse, 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 a penalty, usually a considerable amount of interest will be lost. If you want to find the best certificates of deposit interest rates, you can easily do a 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 a some questions you need to ask whatever institution you are buying from:
1. 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.
2. Make sure you are clear on what the interest rate is 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 afterwards.
3. Non insured CD's will 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? You should think long and hard before you buy 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 is only part of the equation. You need to make sure you fully understand all the aspects of whatever type of CD you are buying, before you buy. You can safely earn some decent money but if you have to close your CD out early, you will pay. |