Bank Cd Interest Rates
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Traditionally, bank CD interest rates have provided a solid, reliable way to earn extra income on money not needed for a set length of time. Ranging in length from six months to over five years, certificate of deposit accounts, or CDs, do not yield the highest financial return like other types of investments, but they are one of the safest ways to invest at a very low risk. Consumers that have money they don't want to risk in the stock market and won't need for awhile, can invest in these special deposits to save for short or mid-term goals like college, a down payment on a house, or even Christmas. Bank CD interest rates are generally higher than traditional savings accounts, but the money will be locked up for the duration of the term. Banks can use this money to balance assets and loans that haven't been repaid.
Certificates of deposit accounts are generally opened with a bank or lending institution. However, some brokers and independent salesmen known as deposit brokers offer these accounts on behalf of banks at higher returns than typical bank CD interest rates. Traditionally, CD accounts are opened for a fixed sum of money for a pre-determined length of time at the interest rate when the amount was deposited. Once the account matures, investors receive their principle and the accrued interest. If an individual decides to withdraw funds earlier, he may be charged with hefty penalty fees. Today, banks offer many other options. Bump up accounts give investors the opportunity to swap their current interest rate for a higher one that is available for the same term. Liquid accounts allow depositors to withdraw part of the principal with no penalty. Callable accounts are usually long-term and include a clause giving the bank permission to call the account back after a fixed period of time. Usually this is done when interest rates fall to reinvest the money at a lower rate. Money invested in deposit accounts are usually federally insured through the bank, making them a low risk investment.
Bank CD interest rates vary among financial institutions, which pay returns at regular intervals - usually monthly or bi-annually. Interest is set according to the annual percentage rate (APR) at the beginning of the term and can be based on a fixed or variable percentage. Annual percentage yield (APY), what is earned over the term of the account, can be calculated by the bank or by using one of many online APY calculators. Returns are usually rolled back into the principal to earn more interest to be compounded in the months ahead, but some institutions will cut a check or transfer the earnings into another account. Typically, longer account terms will yield higher percentages of return. Certificate rates also depend on the APR set by one of several national or international interest rate indexes. As rates rise in other areas, certificate accounts will rise as well. Some banks will also promote special higher return offers to win new business. Credit unions are also known to average better-than-average rates. Online banks can offer some incredible deals but customers are usually required to open new savings or checking accounts that pay low returns or high balances to maintain. In a credit-challenged economy, financial institutions often increase bank CD interest rates to gain access to more money and stay afloat.
One of the draws of a certificate of deposit account is its safety. Customers who open accounts with banks insured by the FDIC are protected if the institution fails. The FDIC recently increased federal deposit insurance from a maximum of $100,000 to $250,000 per institution, protecting customers' investments. The agency also changed the rules to allow financial institutions acquiring failed banks to overrule rates set prior to the takeover. Under a new contract, the institution will still make payments on bank CD interest rates, but at a reduced percentage until maturity. Even with the up and downs of the economy, certificate of deposit accounts remain the safest, most stable method of investment. "And thou shalt be secure, because there is hope; yea, thou shalt dig about thee, and thou shalt take thy rest in safety." (Job 11:18)
Before investing in a CD, individuals must make some careful decisions. The first step is to decide on how much to invest and for how long. Shop around for the best rates. Check newspapers, mailings, and websites. Carefully read all the disclosure statements about the account, including the fine print. Find out what the bank CD interest rates are, how often it will be compounded, when the account matures, and if there are any penalties for early withdrawal. Get a disclosure statement with all the information in writing to keep on file. If going with a broker, check out the firm. Deposit brokers do not have to get licensed or certified and are not regulated by state or federal governments. Know where they will open accounts. If it is with an institution that a consumer already uses, the investment could be pushed above the maximum amount insured by the FDIC, leaving a portion of the investment at risk.
No matter how appealing bank CD interest rates might be, it must make sense for the investor in his or her financial plan. High-yield, long-term deposits with a maturity date of 15 to 20 years may be a great investment for young adults in their 20s who want to diversify their investments, but not a good idea for individuals nearing retirement. For some, certificates of deposits are a great way to earn a little extra money. For others willing to take the extra risk, the return may not be high enough. Every person need be comfortable with the investments they make.
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