How to Invest in High Yield Certificates of Deposit
Certificates of Deposit, or CDs, can be purchased from banks, credit unions or brokerages. Those purchased from banks are FDIC insured. They can be purchased at varying rates and for varying terms. The term "high yield" is relative. In times of low interest, high yield may differ from average yield by only a few points.
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Instructions
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Search for competitive certificate of deposit interest rates online or by calling local banking branches. Look for traditional firms like banks, brokerage firms, insurance companies and even credit unions for the best available rates. You can also take advantage of websites like Bankrate.com that run a search of best available rates in your local zip code. Using a site like Bankrate will make you less likely to match up with a disreputable dealer.
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Determine how much of your savings you would like to invest in a high yield certificate of deposit. Some institutions will allow you to invest as little as $100, but most require a $500 or $1,000 minimum investment. While investing is an admirable goal, CDs are not as liquid as bank accounts, so your investment should be money you won't need to pay the bills or meet financial emergencies.
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Consider where you want to purchase your CD. A brokerage may offer a higher rate than a bank, but brokerage firms usually charge fees that banks do not. You will need to take fees into account when calculating the actual yield.
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Ladder your CDs if you can afford to buy more than one. When you purchase a CD you are locking in that interest rate over a period of time. If interest rates drop over the term of your CD, that's a good thing. If they rise, you lose out on a better rate. Buying more than one CD with differing rates and terms can mitigate the risk.
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Tips & Warnings
To be sure your CDs are insured at their full value, you may want to buy them at different institutions.
When your CD matures you have a grace period -- usually seven days to 10 days -- to tell the bank what you want to do. If you do not notify the bank, the CD will automatically rollover at the current standard rate.
