subject: Are Longer Term Cd Rates Better [print this page] A certificate of deposit, more commonly known as a CD, is what is known as a time deposit and is offered to consumers by financial institutions. It resembles a savings account in that it is considered a low risk investment due to being insured by the FDIC (Federal Deposit Insurance Corporation).
6 months CD rates, on average, earn higher than 3 month CD rates. Because they require less commitment than a 12 month term, they are also a better alternative for investors who would struggle having their funds tied up for a longer time frame. Finding the best rates involves a certain amount of research. Generally these rates fluctuate, they also vary depending on area and amount of deposit.
Typically local banking institutions provide more lucrative CD rates when compared to national banks because of lower operating costs and efforts to gain local business. Much of the research can also be done online, using resources and calculators provided by websites to predict the potential earnings of a particular deposit.
Some websites also provide online calculators that will estimate possible returns on a set deposit amount. Rates at present average the 3% range, however information can fluctuate on a daily basis making it important to research before investing. It is also essential to know whether or not a minimum deposit is required, as well as how interest is compounded and paid out.
This is possible because the broker purchases CDs in larger denominations then splits them up to sell to unrelated investors. If one of these is redeemed prematurely then the brokerage firm can opt to resell their portion at times for a profit and at times for a loss. Brokered CDs are also FDIC insured, although claiming them in the event of a bank failure may take longer.
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. Payout of CDs can be arranged to be periodically mailed as checks or transferred in to a designated account, usually these options need to be specified upon purchase of the CD.
When the CD is set to mature, banks will notify the holder with instructions and the alternative to rollover the principal and accumulated interest to a new CD. This subsequently ties up funds for another term, allowing it to earn interest but preventing its withdrawal by the CD holder.
