subject: Getting The Best Cd Rates For Your Investments [print this page] A certificate of deposit, commonly known as a CD, is considered to be a time deposit and is regarded as a relatively risk-free investment. It generally earns a higher rate of interest than a regular savings account and like a savings account is insured by the FDIC (Federal Deposit Insurance Corporation).
By purchasing a CD, an investor deposits their funds with the bank for a fixed period of time (3 months, 6 months, 12 months, up to 5 years) during which their principal cannot be withdrawn. When the term of the CD elapses it is said to mature, then the funds along with their accrued interest can be redeemed.
Currently the higher 1 year CD rates (one year CD rates) are averaging 1.55%, however these numbers vary based on different factors, including location and the amount of deposit. Generally these fluctuations have a bigger effect on CDs with longer maturity dates versus those that are considered short term, which tend to be less disposed to shifts in interest rates.
The interest earned can be paid out as it is accrued or it may just accumulate within the account. The penalties sustained by early withdrawal of the principle can be calculated by months of interest or measured by what it costs the financial institution to regain the losses. Withdrawal of the principal can also require that the entire CD be closed. Once the CD has reached maturity financial institutions may offer to automatically rollover the funds in to a new CD.
Aside from investigating the bank CD interest rates, it is critical to also research relevant information before investing money. It is important to learn whether or not the certificate is callable and upon what conditions, this gives the bank the right to terminate the CD, for example if rates drop significantly, but it does not extend the same right to the depositor. In the event the CD is called, the investor should receive their principal and any accrued interest.
Deposit brokers also offer CDs, often these brokerage firms can negotiate higher 1 year CD rates (one year CD rates) by promising to bring a certain amount of deposits to the financial institution it represents. These CDs are usually issued in large denominations and are then split up in to smaller values and resold to customers.
Withdrawing funds before a CD has reached maturity generally subjects the holder to severe penalties, this discourages the investor from redeeming the principal before the term has elapsed. Cashing the CD in before maturity usually results in forfeiture of a portion of the interest it has earned. Upon maturity of the CD the bank will typically notify the holder and request directions, often the bank will give the investor the opportunity to rollover the principal and accumulated interest in to a new CD and will do so in the absence of directions from the investor. For this reason it is necessary to understand and be aware of the details of the CD as well as when the term ends.
