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A certificate of deposit offers some of the best rates in online banking. However, the best CD is not always the one with the highest interest rate. It can be difficult sorting through online and local CDs to find the best one. As you compare accounts, here are eight questions to consider:
Looking at the interest rate for your CD should be a no-brainer. But sometimes the rate listed is the APY (annual percentage yield). Other times the rate listed is the APR (annual percentage rate).
Which rate do you pay attention to?
The answer: both APY and APR.
APY is the total amount of interest you receive over one year. The APY includes the compounded amount balance. This means you earn interest on your initial deposit and the interest earned.
APR is only the interest rate the CD earns, not the compounded effect on the account.
CDs are famous for having fixed interest rates. Fixed rates offer assurance that if rates fluctuate, your rate stays the same. Savings, checking, and money market accounts have flexible interest rates. This means if the market rate drops, the account rate drops. If the market rates go up, the account rate goes up. Fixed-rate CDs are good if the market rate drops because your rate stays high. However, if the market rate increases, your account rate stays low.
To find the best certificate of deposit, you need to compare the same rates, meaning, APY to APY and APR to APR. CDAccount offers charts to help you find the best rate. Rest assured, when you find that high-interest CD, you will have fixed-rates for the length of the term.
Standard CD terms vary from 30-days to 10-years. The incentive to invest your money into a long-term CD is the interest rate is much higher. The incentive for investing in a short-term certificate of deposit is you run a lower risk of early withdrawal fees. The smartest thing to do is read the fine print on your account. Look at the break down of monthly and yearly CDs.
When you open a CD, the money is locked in for the life of the term. If you withdraw money before the CD matures, you are charged an early withdrawal fee. These fees can range from 90-days to 500-days of interest. The fee depends on the bank and the term. Early withdrawal fees can rob you of the high interest rate. Be sure you know the penalty for withdrawing money early before you lock in your funds.
Bank accounts have opening required amounts. This is the amount of money required to open the account. These amounts for CDs can vary from $0 to $100,000, depending on the CD and the bank. Whatever the amount is, you must have at least that much money when you open the account. If you cannot afford to open one CD, keep looking. There are a wide variety of required amounts. Find the one that fits your financial plan.
Reading reviews of certain CDs helps you know what other customers experienced. Reviews are a good way to get information not shared by the bank. Some reviews let you know what the customer service is like and if there were any hidden fees. Filter through overly critical or really positive reviews. In some cases, people simply did not take the time to write a good review, or the review is from the bank itself.
We recommend opening a CD because of the low risk and great return on your money. If you understand the interest and penalties, you are getting a good return for zero risk. All the CDs listed on our site are FDIC insured. Make a goal of how much money you want to invest and set a specific day to open the account. Then find the right CD and open the CD. When researching accounts, take advantage of CD calculators and consider CD laddering.
Financial Calculators
The use of a CD calculator can help in deciding how much money to invest. Using a calculator can help you visualize your goal. It can help you stay focused and committed to keeping your money in the certificate. When your funds allow, open another CD. It is rewarding to see your money earn more money off interest.
CD Laddering
Typically, the longer the term, the higher the interest rate. Because of this, CD laddering is the best way to earn the most interest, but still have access to your money. An example of a CD ladder includes having five, five-year CDs. You would open one five-year term each year for five years. Each term earns the most competitive interest rate, but one CD matures each year. The staggered maturity dates give you access to your money without facing fees. You can ladder any CD term length, but the five-year CDs tend to earn competitive interest rates.
Banks can give you options on how to receive the earned interest. Common options include having the interest added to the CD or transferred into another account. Some CDs allow you to withdraw the interest without facing a penalty. Know what options are available for the account you open. It is smart to know about how much interest you should earn over the life of the CD you open the account.
Online CDs have become one of the most frequently used accounts for saving money. They offer the convenience of setting up and monitoring accounts from anywhere. Online CDs can have higher interest rates, but this is not always the case. CDs from local banks can also offer competitive rates. Compare different bank accounts to decide if an online or local bank CD is the best option.
The best certificate of deposit has minimal fees and high yield interest rates. You may find one with high interest rates, but high early withdrawal fees. If the fees are high, you may lose all your earned interest in fees if you have to withdraw money early. A CD with better than average rates and lower than average fees might end up yielding a higher return than the CD with the highest rate.
Remember to shop around, read reviews, know the CD facts, and compare accounts. With CDAccount, you will be able to find the best CD. We strive to provide the best information to help you make smarter savings decisions!