CD Rates Guide
This is a CD Rates Guide to help investors on how to find the best possible rates when placing their money in this low-risk investment.
Unlike stocks, the risk with certificates of deposit is extremely low. In addition, most if not all investments in CDs are protected by the FDIC on the principal only. This literally means that if the financial establishment you have a CD from fails or otherwise goes bankrupt, your original investment will be refunded to you by the federal government. This will not include any interest that was acquired. All of that is lost. The basic drawback to low risk investments is the low return you can receive. The higher the risk, like in stocks, the greater the possible return.
The easiest way to know what the top CD rates in the country are is by looking at Discover Bank CD rates. They have a company mission statement that includes their aim to be in the top 5% of any other financial institution in the nation on any CD rate. An example of this is the posted CD rates for a 5 year CD on February 9, 2010. Discover Bank has a rate of 3.20% APY while the national average is at 1.83%. They never claim to have the best rate, just one of the better. As an investor, you can use this information as a starting point.
The interest on these CDs is what should be preferred by investors, they have interest compounded daily. This makes it possible for the highest rate of return upon maturity. Compounded daily interest means the interest that is earned on day one collects interest on day two of the CD’s term. This is better than weekly compounded interest which is better than monthly compounded interest. The more often your investment is compounded, the higher your return will be.
One option investors should never take, if possible, is when you are allowed to have the interest deposited in another account, other than the CDs. This option, if taken, is to the advantage of the financial institution. By having the interest removed from the CD, it will not collect interest and thus lowering the payout. This will also change the APY of your investment. The difference between the interest rate and the APY is the amount the interest will accumulate over the term of the CD. The greater the difference, the more often the interest is compounded. This is why some CDs that have the same interest rates have different APYs.
Other factors that will affect the amount you earn with a CD have nothing to do with the rates, but still affect your profits. These are the fees that are associated with the CDs. Most financial institutions do not charge for money being wired in electronically because all they have to do is accept them. There is not much of a process to send one either, but all institutions charge for this convenience because they can. The fee can range from $10 to $50. Other fees that are common are for a paper statement and how it is sent. With $5 for the issuing of a paper statement and $20 for priority mail, which most use, the total for knowing what you are earning is $25. When choosing your financial institution, check and see if the monthly statements are viewable online. If so, this should be available for free to help you keep track of your investment.
Before you make the deposit and sign any agreements involving a CD, make sure you do not need the money for any reason before it will mature. There are substantial penalties that financial institutions take if a CD is withdrawn before its maturity date. If you make the early withdrawal near the beginning of the term, part of your principal could be forfeited. Make sure you can loan this money to the financial institution before signing any agreement.
Today, there are variable-interest CDs available. Most of these sound like wise investments, but at the present time with the Federal Reserve keeping interest rates artificially low, they are not a good investment. Remember, the more risk that is involved, the great chance of profit or loss can occur.
Callable CDs can be invested in, but the term can be changed by the financial institution when they feel like it. It is best to get a “fixed rate, fixed maturity” term so you will know exactly what you will earn and when it will be available to you.
Investigate the various bank CD rates before making any investment and always read all the fine prints before signing any document, no matter how routine the bank representative tries to imply it is.
By following this CD Rates Guide, you increase your chances of finding the best investment available to you.