- Investment CD interest is usually paid each quarter and may be added to the CD or disbursed to the investor (many CDs allow you to choose one or the other when you buy the CD). "Brokered CDs" are regular CDs, but are marketed through middlemen who negotiate with banks to get top interest rates for their customers. Since 2000, several variations on the traditional investment CDs have become staples of most banks' menu of CD options. "Callable" CDs allow the bank to call (redeem) a CD before the maturity date. This gives the bank some leeway if interest rates drop, but doesn't work in the investor's favor. Some CDs are issued with variable interest rates. These can be good or bad, depending on whether the holder of the CD is likely to find his interest rate ratcheted up or down. Liquid CDs allow limited withdrawals of funds and can be a good way to limit the risk of being "locked in" to a low long-term rate in a rising interest rate market.
- The investment CD market places a premium on size and duration. The large the CD, the higher the interest rate usually is. So-called "jumbo" CDs of $100,000 or more get the highest rates. Short-term CDs usually pay lower rates than longer maturity certificates of deposit. Investors are sometimes surprised to learn they may get better rates at small banks and thrift institutions. Smaller institutions often offer premium rates to attract investors. The key for the CD investor is to find the best rates and minimize the risk of being caught with a long-term CD when interest rates rise. One way of avoiding this problem is to buy a liquid CD. With this type of CD you can withdraw funds from the CD periodically, or you can add money to the CD. The disadvantage of a liquid CD is that it pays lower interest than regular CDs. However, if interest rates go up, you can shift funds into a better-paying CD. If interest rates, fall you can switch funds into the liquid CD.
