CD Investing Getting the Best CD Rates

As simple as investing in certificates of deposits are if you are a newbie all the choices can be confusing. There are many different flavors of certificates of deposit (CD) available to invest in. There are fix rate CDs, variable rate CDs, broker CDs and many other types. 




There are also many different types of CD terms (duration) that your money is "locked up". You probably see advertisements for "high yield CD rates", "bump-up CD rates" "no penalty CDs" and most of all you probably are shocked at how low current CD rates are right now.

Before you place your money into a CD account you first need to have a full understanding of all the different aspects of a CD account including the terms. Once you have figured out what type of CD and what CD term you're going to invest in you're ready to comparison shop for rates. 

Just like you would comparison shop for a big ticket item you should also do so when investing. A 1% different in a CD rate annually can add up to hundreds or thousands of dollars in lost interest.

As with any investment decision there is probably financial goals behind the decision. Take a look at your current finances and figure out what you're goals are before investing in a CD. The main reason being is with a CD account your money is invested for a specific amount of time. If you open a 5 year CD make sure you don't need the money before the term ends. If you withdrawal your money early you will pay a penalty which is usually some of the interest earned.

Back to shopping for the highest CD rates. When you’re comparison shopping you’ll see two interest rates, the CD rate and the annual percentage yield (APY). The difference between the two is the APY takes into consideration compound interest, which is interest earning interest.

Also when shopping for the best CD rates make sure you only place your money in a bank that is insured by the Federal Deposit Insurance Corporation (FDIC). Deposits are insured for up to $250,000. The same goes for investing in a credit union CD. Make sure the credit union has deposits insured by the National Credit Union Administration (NCUA).

Since CD rates at banks are so low right now you have to make sure your investment stays ahead of the inflation rate. Failure to do so will make your money worth less since your buying power diminishes.

Tip: Use a CD Calculator to figure out your return before investing.

Make a note to yourself of when your new CD investment matures. Most investors forget the maturity dates only to find out that their money has been rolled into a new CD with a lower CD rate. Financial institutions will notify you when your account is maturing so pay attention to letters or email you receive.

Two other factors to consider when investing in CDs is make sure the CD isn't callable. These types of CDs can be "called" by the bank or credit union before the maturity date. This usually happens if market CD rates go considerably lower than the rate you have locked up. Callable CDs give the issuing bank the right to terminate the CD after a set period of time, but the investor doesn't have that prevledge.