About the Best FDIC CD Rates
Certificates of Deposit (CDs) have traditionally been a repository of safe investment, particularly due to the fact that the federal government insures the deposit and protection from market or economic forces via the Federal Deposit Insurance Corporation (FDIC). Yet, competition is still allowed between banks offering CDs, so their actual investment rates of return can vary. In this regard, average investors have to do their own homework to take advantage of the best rates.
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What is the FDIC?
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The FDIC is a federal agency put in place to make sure that basic savings and bank accounts are not wiped out due to the economy or bad management decisions of banks or other reasons. In short, every depositor is guaranteed by the strength of the federal government that up to a specified amount of their money will be protected. Beyond that amount, there is no federal protection. An FDIC-insured deposit is one that is covered as described.
The FDIC is also in charge of making sure failing banks are taken over by the government and transferred to those who can successfully manage the affected accounts and assets.
Research And Research
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One of the easiest ways of find the better rates in CDs is to do your research of what each bank is offering for their FDIC CDs. Remember, only U.S. banks are part of this group. Foreign banks do not have FDIC-insured CDs unless they have operations in the U.S. as well.
Look for CDs with longer maturities. The longer a bank can have your funds on deposit, the more they are willing to pay in a rate of return. The difference can be as much as 2 to 3 percentage points. This will require your money to be committed longer in return for the benefit. Note however, there is a bit of an informal ceiling on how much a bank can offer. Banks offer too high a rate cause complaints by competing banks to the Federal Reserve, which then investigates the issue.
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Make Competition Work for You
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Big banks don't necessarily feel that they have to pay high rates for CDs given the large amount of deposits they already have. However, smaller community banks and credit unions need to grow, so they will offer higher rates to be competitive. Many times these smaller outfits needs to have deposits quickly to reach a certain level of solvency for more growth. The result then tends to be very attractive CDs offered for a limited time.
Do Bank's Work And Get Bonus
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Online banks tend to also offer attractive rates because their operating costs are lower. By avoiding a large number of physical branches with all the related costs and staffing, these banks can then attract customers with rates much higher than traditional banks. Do all the work of managing your funds and transacting via the Internet, and these banks reward you with higher rates of return.
Get Broker's Help
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If you have significant assets and invest actively, your broker could be very helpful in finding you aggressive CDs that are still FDIC-insured. Brokers have access to databases that list all available CDs from banks across the country and can sort them by rate, bank, amount, deposit requirement and maturity. The easy sorting of mass information is quite powerful in managing investment profit effectively via CDs.
Be Known Face in Bank
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Finally, customers that deposit significantly in a particular bank will receive better attention than a basic walk-in. Banks want to maintain such relationships and will offer better CD rates to known customers who maintain big deposit amounts.
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- Photo Credit Image by Flickr.com, courtesy of Anonymous Account
