Secure The Best Cd Rates

Certificates of Deposits, more commonly referred to as CDs

, are what is known as a time deposit. They are provided by banks and credit unions and function much like a savings account because they are FDIC insured and practically free of risks. CDs differ from savings accounts because they generally offer a higher interest rate.

A CD is said to mature when this term elapses. While it is possible to withdraw money from a CD, penalties are usually incurred. Generally the fixed terms offered are 3 months, 6 months, 12 months, up to five years. Longer terms on average generate higher interest. CDs resemble savings accounts in that they are insured by the FDIC and are considered a risk free investment.

Finding the best 3 month CD rates generally requires a fair amount of internet research. Many websites are available to compare some of the current interest rates offered by financial institutions. However some of these rates are contingent upon a minimum deposit and tend to differ based on location. Currently rates can vary from between 0.75 % and a little over 1 %. Many websites provide online calculators that can estimate returns for a particular deposit. Other factors to consider are how the interest is compounded and how it will soon it will be paid out upon the CD's maturity.

CDs can also be procured through a deposit broker. Generally, these brokerage firms are able to negotiate slightly higher than average 3 month CD rates in exchange for bringing in a certain amount of deposits to the financial institution that issues the certificates. Brokered CDs are often marketed as being free from prepayment penalties.

This is because the broker purchases the CD in larger denominations then is able to split it up and sell it to several unrelated investors. Should one of these investors decide to cash in their CD before maturity, the broker can venture to resell the CD at times for a profit. FDIC insurance also applies to brokered CDs, however in the event the financial institution fails, these take considerably longer to claim.

Withdrawing funds before maturity generally incurs a substantial penalty, often resulting in the loss of several months' worth of accrued interest. These fines are in place to discourage the CD holder from cashing in their certificate before the specified term.

Those who are considering investing in a 12 month certificate of deposit versus a 6 month certificate of deposit, should take in to consideration the amount of time those monies will be inaccessible. CDs with a 6 month maturity are generally a better option for individuals who may require access to their deposit in the imminent future, while the 12 month CD is a smarter choice for investors who are interested in earning a higher rate of return with little or no risk involved and have the financial flexibility to keep those funds unavailable for the interim.

by: James A Jackson

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