CD ACCOUNTS » Certificate of Deposit News

If you’re looking for a secure investment with a guaranteed return, a certificate of deposit (CD), may be the right choice for you. Since CDs are protected accounts that are usually insured by the FDIC or NCUA, they are considered one of the safest places to put your money in an uncertain economy.

A CD is a type of time deposit, which means that when you take out a CD from your financial institution, you do so for a specific, fixed term – for example, one, five, or ten years. When you put money in a CD, you are making a commitment to let the bank hold your money for the entire length of the specified term. This differentiates it from a passbook savings account in that, unlike in a savings account, you are not allowed to withdraw funds at will from traditional time-deposit CDs. Withdrawal of funds from a traditional CD before its maturity date is called “early withdrawal” and is generally accompanied by financial penalties which wipe out any gains you may have made in accumulated interest.

A “passbook” is something that records the transactions you make on a traditional checking or savings account – which is why those accounts are sometimes called passbook savings or passbook checking. Technically, with a traditional CD you don’t need a passbook because you are not going to be withdrawing your money from the CD before its maturity date.

However, some banks offer a variety of CD options including liquid CDs, “bump-up” CDs, or Passbook CDs, which will offer you the advantages of a CD rate without the disadvantages of a traditional CD. Some passbook CD accounts may offer a higher rate than passbook savings, while offering the liquidity of a passbook savings account. Shop around and check with various institutions to get the best CD rates available to you.

In a down market, if you are afraid of getting locked into a low interest rate, you might want to look into liquid CDs. Also sometimes called a “no-penalty CD,” this type of CD investment product is offered by some banks as an alternative to a traditional CD that allows consumers the ability to withdraw their money from the CD account without incurring a penalty.

Just like with any other certificate of deposit, the terms and conditions of your liquid CD can vary widely, so it is worth checking the fine print to make sure you understand the conditions of your CD account. One important thing to consider is how soon you will be able to make a withdrawal after you open the account. Federal law requires a seven-day period before you can withdraw money from a CD without penalty, but your bank can determine the first penalty free withdrawal after that for any time they choose.

Another thing to consider is whether there are limitations on how many withdrawals are allowed. Also, you’ll have to consider whether the convenience of liquidity is worth sacrificing the return you would be getting if you chose a CD without the liquidity feature.

Traditionally, the convenience of liquidity means that your CD will carry a lower interest rate than a traditional CD with the same term and minimum. However, the interest rates may still be higher than the bank’s money market accounts or savings account rates, so it might be worth pursuing.

The advantage of having a liquid CD is, of course, the liquidity – you can access your money while still benefiting from the CD rates. But it pays to read the fine print and find out what the terms and conditions of your CDs are before committing to a liquid or “no-penalty” CD. If you are working with a brokerage, make sure that you fully understand what you are getting into, and check with your financial institution to ensure you are getting the best CD rates for your needs.

Certificates of Deposits are one of the safest investments you can make. However, one of the drawbacks of investing a large sum of money in a CD is that, if interest rates rise while you are in the midst of a long CD term, you will still be stuck with the lower interest rate. Also, if you need cash immediately, you won’t be able to liquidate your CD without paying heavy prepayment penalties. To get around these disadvantages, many savvy investors use a process called “laddering” of CDs.

This is how laddering works. Let’s say you have $6000 to invest. Instead of investing the whole $6000 in one account, one thing you could do would be to divide your money into six increments of $1000. Then, every month, for the next six months, invest $1000 in a six-month CD. After six months, you will have a certificate of deposit that matures each month, which offers you the security of a CD investment, plus the flexibility to choose what to do with your investment on an ongoing basis. If you need money that month, you can cash out the CD that is maturing. You can also choose to roll it over into another six-month CD, or, if interest rates have improved since your last investment, you can cash out and find another CD with a higher interest rate. An added bonus is, with a six month CD, you will also be compounding interest every six months.

However, as a general rule, long term CDs usually have the best certificate of deposit rates, compared to short term CDs. Another way to ladder CDs is to buy several CDs at the same time, but with different maturity dates. For example, say you take your $6000 and with $1000 each, you buy a six month, one year, two year, three year, four year and five year CD. Every year, your CD will come to maturity, and you can roll it over and reinvest, even to a longer term CD if it happens to come due when interest rates are high. This way you will get the best CD rates without the long-term commitment.

As with any investment decision, you’ll want to learn as much as you can about your investment options before purchasing a CD. Particularly, you will want to understand how investment works with regards to interest rates your CD will earn - depending on the size of the principal.

Generally, the CDs with the largest principal get the best CD rates. There are incidences in which you might get a better interest rate on a lower principal CD that has a longer term, but as a rule of thumb, the larger the amount you invest into the CD, the better your interest rate will be. This is the bank’s way of rewarding you for letting them tie up a large amount of your money for a long period of time.

If you are willing to invest a larger sum of money, you might also be qualified for special types of CDs and high yield certificate of deposit rates that require a certain minimum balance. If you can meet the minimum balance, you are entitled to the best certificate of deposit rate available. Check with your bank or financial institution to find out what the minimum balance requirements are for the type of CD you are considering. Sometimes, you may also be required to have a checking account at that institution to qualify for special rates.

If you check online, you can find many resources to do research if you want to compare interest rates and find the best CD rates for your area. You can easily compare certificate of deposit rates offered by various financial institutions, whether it is through a traditional storefront bank, a credit union, a brokerage, or an online account. Also, many popular financial websites offer calculators which can help you estimate your earnings on any particular investment. Results on estimated earnings are based on the size of the principal you are willing to invest, length of time it takes for the CD to mature, and the annual percentage yield. With a little research, you can find a CD that offers what you are looking for at the best CD rate.

You may have heard of “FDIC Insured deposits,” and wondered what it means exactly? FDIC stands for the Federal Deposit Insurance Corporation, which was created in 1933 in response to the severe bank panics brought on by the Great Depression.

During the 19th century, bank panics were relatively common: when economic downturns and unemployment caused consumer confidence to plummet, many investors would panic about the safety of their money, and withdraw their cash from the banks. After the “Panic of 1893,” when the failure of several banks involved in shaky railroad financing caused a run on the banks, the federal government began to draw up plans to create better security for bank deposits, since bank runs had the effect of making the economy worse. So they created an institution that would guarantee deposits held by commercial banks.

The FDIC provides deposit insurance to guarantee the security of checking and savings deposits to its “member” commercial banks. You can tell which banks are members of the FDIC because they display an offical FDIC logo at each teller window.

Deposits are insured up to the amount of $100,000.00 per depositor per bank. If you have more than $100,000.00 to deposit, you could deposit your money at two different institutions, or you could place accounts in different ownership names. For instance, a trust, joint account, or beneficial ownership would be considered as separate accounts with different ownership names. Switching the order of names on a joint account (ie, David and Hortense Willinger instead of Hortense and David Willinger) does not count as a different ownership name, because the owner’s names are the same.

Certificates of deposit are one of the safest investments because they are treated as a bank deposit and insured by the FDIC. The FDIC does not insure stocks, bonds, annuities, municipal securities, or mutual funds. They also do not insure the contents of safe deposit boxes.

Certificates of deposit, also known as “CDs”, are generally looked upon as a conservative investment: safe, insured by the federal government, and stable. Part of the tradeoff for that safety is that the rate of return on CDs is not as high as more the risky investments. That said, when purchasing a CD, you will naturally want to get the best CD rates possible and get a high yield on your investment. It is possible to get a high yield certificate of deposit, if you are willing to do some research and know what you are looking for. But there are a few tips you should keep in mind when looking for a high yield certificate of deposit.

First, be sure you are ready to leave your money alone. High yield CDs generally require longer term requirement on the investment, and the best cd rates are usually on CDS with a term of three to five years or more. But the downside is, your money is tied up for a long period of time - so be sure you are able to do that. It does not do any good to have an interest-earning CD if you have a cash emergency before the term is up and need to pay a penalty for early withdrawal.

Also, keep an eye on the maturity date of your CD. If you don’t redeem your CD in time, your bank may simply roll it over and you will lose your chance to reinvest for another term. As the saying goes – “If you snooze, you lose.”

The FDIC insures deposits of up to $100,000 per depositor per bank. It’s wise to make sure you remain below the FDIC insurance limit when you are investing in CDs. If you have two $50,000 CDs, for example, you would want them to be at different banks. The FDIC website has more information.

Finally, bear in mind that many high yield CDS have what is called a “call feature” which allows banks to terminate your CD before its maturity date if interest rates fall below a certain level. The higher the rate on a CD, the more likely it is to have a call feature, so be sure to check your banks’ policies before you sign up for CDs. If the best interest rate sounds too good to be true, it might just be.

A fixed rate certificate of deposit (or CD) is a type of investment product offered by banks and other institutions, which is very similar to a checking or savings account. However, when you purchase a CD, you are making what is called a “time deposit” in the bank – a deposit which you cannot touch for a specified period of time, and which bears interest which is compounded periodically.

A fixed rate CD is the most common type of CD. Variable rates, “bump-up” rates, and rates tied to an index such as the stock market, are less common. However, a fixed rate CD offers you the security of knowing that your interest rate will not fluctuate over the life of the investment. When interest rates are high, you can lock in the best CD rates and keep them over the life of the CD. In that respect, even though the interest rate of the CD is generally considered low when compared to some other investments, buying a certificate of deposit is usually considered one of the least risky investments out there.

Like a savings account, your certificate of deposit is insured by the FDIC. However, unlike a savings account, a CD is a type of time deposit, which means that it has a specific, fixed term. When you put money in a CD, you do so with the expectation that it will be held there for the entire term. There are generally stiff penalties for early withdrawal from a CD account.

You can buy a certificate of deposit for various terms. Some typical CD terms would be a three month, six month, one year, or five year CD. The longer term CDs generally offer the best CD rates, and CDs almost always carry a better interest rate than savings accounts from which money can be withdrawn at will. Fixed rates CDs are the most common, which protects your certificate of deposit from the fluctuations of the stock market. However, some banks offer CDs with a “bump-up” feature, which will allow for a single readjustment of the CD’s interest rate during the term of the CD. Shop around to see what the best certificate deposit rates are in your area.

A certificate of deposit account is an instrument that gives you mid-term to long-term stability as an investor. When compared to other savings vehicles such as mutual funds or stocks, CDs are some of the most secure investments on the market. Their interest rates are not usually tied to fluctuating market patterns, and they are usually insured by the federal government. Since they are easy for a beginning investor to use, and have a slightly higher interest rate than a traditional savings account, they are generally considered a good step toward investing in your own financial security.

However, unlike saving accounts, CDs are more difficult to convert, and harder to move from institution to institution. Therefore, CDs are not as accessible as another savings vehicle might be. You just have to wait until the certificate of deposit matures.

But what happens if you die before your CD matures? Like any other asset, you will want to make sure that your estate is able to access that money in the event that something happens to you. If you can’t afford a lawyer, or if you just want to avoid having the CD end up in probate, you can create a beneficiary for your CD. It’s a fairly simple process that doesn’t cost anything.

First, find out from your financial institution whether you can add a “POD” onto your account. The term means “payable on death” can be added to any type of bank account, including a certificate of deposit. Ideally, you should add a POD when you open the account, but if you haven’t done so, you may still have the option to do so later. If your bank cannot add a POD to the CD in the middle of your certificate of deposit term, be sure to schedule an appointment for when the CD comes due.

To add them as a POD, you will need certain pertinent information about your beneficiary, such as their social security number and date of birth. You might also double check their full legal name.

Finally, don’t forget to round up the numbers of your COD accounts that have a POD on them, along with the relevant info such as where the account is located, and keep this list with your will and other important legal documents. You’ll want to be sure to keep this list up to date. With a little pre-planning, you can ensure that the financial future is bright for you and your beneficiaries.

CDs are “time deposits,” which means that when you purchase a CD from a bank, you are committing to allow it to earn interest for a certain period of time. The period of time which it takes for your CD to reach its “maturity date” is called a term, and that period could be anywhere from 6 months to even 10 years. Different types of CDs have different types of terms, and each type has its benefits and disadvantages.

CD terms can be divided into two broad general categories. The first is “short term CDs,” which would generally apply to CDs that have terms of one year or less – for instance, a month, three months, or six months. “Long Term CDs,” for our intents and purposes, can be defined as CDs with a maturity period of longer than one year. CDs terms can vary quite broadly, but let’s take a look at the advantages and disadvantages of short and long term CD terms.

Short term CDs – those that reach maturity in a few months – have the distinct advantage of not tying up your money for a very long time. If CD rates go up in a few months, for instance, you have the flexibility to move your nest egg into an account with a better interest rate. However, with short term CDs, you must pay attention and keep an eye on your maturity date. If you just allow it to roll over, you might get rolled into a much lower interest rate (going from 3.25% to .9% is not unheard of). If you are just going to leave the money there, a longer term CD might be for you, since those generally pay better interest rates.

Long term CDs allow you to lock in a good rate for a longer period of time. This is especially useful when interest rates are being cut, because no matter what the Feds do, your interest rate will remain the same over the term of your CD. So a long term CD allows you to accumulate interest at a predetermined rate over a longer period of time. They also tend to pay the best CD rates. However, there can be substantial prepayment penalties for withdrawing your CD early, so make sure you are able to part with that amount of cash for the term of the CD.

One important concept to understand when you are buying a CD is the difference between what’s called the annual percentage yield (APY) and the annual percentage rate (APR). The Annual Percentage rate is, simply stated, the percentage rate of the interest your CD will earn in one compound period. However, the annual percentage yield can actually be different, based on how often your interest is calculated and compounded. If your CD pays interest annually, the APR and APY are the same. However, if your interest is compounded more than once a year, your total APY may actually be higher than your APR. The more frequently the interest on your account is compounded, the greater the yield will be.

Let’s say, for instance, that you purchase a one-year CD in the amount of $1,000, that pays 5% APR. However, the interest on that CD is compounded semi-annually. In this case, you would receive an interest payment in the amount of $25 (that’s one thousand dollars times five percent, times .5 years. You are still only receiving half a year’s interest – the same amount of interest you would have earned if your interest was calculated and paid out once a year. However, since you are receiving it midway through the year, that interest is compounded to your account, and begins earning interest of its own. By the end of the year, that interest has earned an extra 62 cents (twenty five dollars times five percent times .5 years = .0625). It may not sound like much, but over time, compounding can result in significant savings. And, in the case of this example, it bumps your APY a bit over your APR: your APR is 5%, whereas your APY would be 5.06%.

Almost every bank offers CDs, and as an investment tool, they can be very useful to the beginner investor as they are generally safe, not tied to indices like the stock market, and insured by the FDIC. But you should shop around to several institutions to see who has the best CD rates around, and don’t forget to ask how often the interest is compounded to make sure you have a high yield certificate of deposit. With interest compounded semi-annually or even monthly, your APY can be significantly different than your APR!