How to Pick a Bank CD

There are several factors that must be considered before you pick a bank CD. Certificates of deposit are relatively safe investments that pay a predetermined amount of interest in exchange for keeping a set amount of money in a particular bank for a set amount of time.

Difficulty: Moderate

Instructions

1. Understand how a bank CD works. The more money you put in a bank CD, the more interest you will earn. Likewise, the longer you keep the money in the bank, the higher the interest rate will be. Another factor is frequency of compounding. The more often interest is posted, the more money the bank CD will pay you.

2. Go to your banks and ask for their bank CD rates. They will give you a list of rates and corresponding periods of time. Go around to several other banks and ask for their bank CD rates. Keep track of these numbers. Also go online and perform an Internet search for the best bank CD rates. The rates you will see online will probably be better than the ones from your local banks. However, investing with them will probably involve banking through the Internet or mail. Some investors are not comfortable with this.

3. Compare the bank CD yields. This always appears next to the bank CD interest rate. Yield is a better indicator of how a bank CD will perform because it takes into account the rate of compounding. The more often the bank CD compounds, the higher the yield. The yield is the annualized return the bank CD will pay you.

4. Understand that some bank CD interest rates and yields are only available in certain areas. The differences are a result of various state and local laws plus the competitive nature of the banking industry. If a bank wishes to be more competitive in a particular area, they might raise bank CD rates just in that area. Always check that a bank CD interest rate is available to you when dealing with Internet banks.

5. Consider the term length of a bank CD. The customer promises to leave an agreed upon amount of money in the bank CD for a designated period of time. If the money is withdrawn early there will be significant penalties that will wipe out all the interest earned and possibly more. Do not invest money in a bank CD if there is a chance that you will need it before the maturity date.

6. Invest your money in the bank CD of your choice then wait. You don't need to do anything until the bank CD matures. When a bank CD matures, all the interest is paid.

Tips & Warnings

• You can invest in bank CDs with confidence. All Bank CDs are FDIC insured up to $100,000.00 per person per bank.
• The bank is supposed to notify you that your bank CD is maturing, but you should mark the date on your calendar just in case they don't. You then have a grace period, usually one week, when you can withdraw your money. If you do nothing, the bank CD will automatically renew. You may find yourself unable to withdraw your money without penalty if you forget your maturity date.

Resources

• Emerging Dragon
• Free Gold Tips
• Maxmonkey
• Press the Point
• I Want Them Fired
• News Anchor

[marielc]

on 4/27/2009 I like using Bank CDs since they can let your savings grow a little faster.