How to Compare CD Rates
Certificates of deposit (CDs) are versatile and safe methods of investing your hard-earned money. Usually available at banks but also available online and through credit unions and other financial institutions, CDs can help you achieve your financial goals. Before investing in a CD, you need to compare CD rates.
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Instructions
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Understand what a CD entails. A CD is an instrument into which you put money that the bank holds for a fixed period and pays a fixed interest rate. For example, you may open a 5-year CD that pays 4-percent annual interest. The bank pays you a higher rate of interest on a CD than on a savings account because it knows how long it gets to keep (and use) your money. There's a penalty for early withdrawal of money in a CD, usually a few months' earned interest. At the end of the CD's time period, depositors may withdraw their money or roll it over into a new CD.
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Compare and contrast various CD products. The longer the CD term, the higher the interest rate may be. Similarly, the more money you put into a CD, the higher rate of interest you should earn. Some CDs have minimum deposit requirements. Some CDs are "liquid" CDs. This means that you have a few windows of time during which you can withdraw some money from the CD without penalty. Some CDs don't have fixed time periods, but the longer you keep your money in the CD, the higher the interest rate climbs. Some CDs combine with tax-advantageous IRAs in a hybrid IRA CD product. See your financial advisor to help you decide what CD is best for you or check an online CD Comparison Tool.
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Shop around. CD rates vary wildly among different banks. Often Internet banks or credit unions can pay higher CD rates because their operating costs are lower. Websites like Bankrate monitor CD rates across the country and can help you select the CD that's best for you.
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