How to Compare a List of Bank CD Rates
Certificates of deposit (CDs) are short- or medium-term bank accounts that are insured by the Federal Deposit Insurance Corp. (FDIC). Low-risk but often low-return investments, CDs earn money for the account holder by collecting interest set at rates that are effective at the time of purchase. Comparing rates offered by various banks is a good way to earn the highest interest available.
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Features
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Since CDs are accounts offered by banks, they are not publicly sold or exchanged, and they do not require brokers for purchase. Customers may personally purchase CDs from their bank of choice. Each bank determines the interest rates for its CDs, so rates may vary from one institution to the next. Banks generally base their rates on federal interest rates.
Benefits
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CDs are a guaranteed return on investment, and the rate of return is usually higher for CDs than traditional money market accounts offered by banks. In addition, at FDIC-insured banks CDs are covered along with other savings accounts. Each depositor is insured up to $250,000 per bank.
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Drawbacks
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Investors may remove money from the CD prior to maturity, but there usually will be a penalty fee charged by the bank. CDs are meant to be a one-time investment with compounding interest that stays in the bank until the account matures. Also, the rate usually stays the same throughout the entire life of the CD, even if rates increase during that time.
CD Rate Comparisons
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Contact all the banks in your area and ask for the entire battery of CD rates they offer for every term available. Rates vary by dollar amount and term length, with longer (and sometimes larger) investments yielding higher rates. Determine how much money you can tie up in a CD and for how long. Place lists of CD rates for each institution side by side and choose whichever rate is highest for your specific investment amount and desired term length. Be sure to ask what the early-withdrawal penalties apply at each bank as well.
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References
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