How to Find the Highest CD Rate Available
They don't have the pizazz of aggressive growth stocks, and they rank right above the savings account, as the yield of last resort. But the new breed of certificate of deposit offers a combination of flexibility, stability, and for those high yield chasers -- risk. The time-investment rule still applies: Higher-yield CDs have longer maturity cycles. And a word of caution: Your funds can evaporate without backing from the Federal Deposit Insurance Corporation. Deal with reputable institutions.
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Instructions
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Check Current Interest Rates
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Calculate how long you can afford to tie up your funds. Five-year CDs pay significantly higher rates than three-year or six-month CDs. They also come with stiff penalties for early redemption. Consider the "laddering" strategy if you intend to hold CDs for extended periods: Break up a deposit amount, say, $100,000, into four CDs with maturities of 12 months to 10 years, with a value of $25,000 each. This "rolling" maturity allows you to take advantage of a high return and retain the flexibility of some liquidity.
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Compare CD rates offered at stock and deposit brokerage firms. This takes a little more legwork, but it can pay off with attractive yields, often at rates superior to traditional banks and thrifts. In the case of brokered CDs, though, higher rates can also sting you with other risks. For instance, these CDs can have a "callable" feature: The issuing bank can terminate them before the maturity date, according to the Securities and Exchange Commission. Brokerage CDs can get tricky, so tread carefully even while tempted by high rates.
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Use online search tools to check the current, national rates. Bankrate.com has an application that will report yields on CDs available from local and national banks. As a plus, you can evaluate the earnings for different maturities using the CD calculator and project the accrued interest over time.
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Learn how the CD gets calculated, the date of maturity and the applicable rates -- for example, a two-year CD at 1.57 percent, or a 10-year CD at 3.47 percent. Use the CD search tool at Google Advisor to further compare and sort promising candidates for your funds. If you want to stay in the high-yield ballpark, eliminate certain types of CDs from your list. For instance, the zero-coupon CD. As the name implies, it doesn't offer an interest payment but can look like a good deal because of the deep discount.
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Tips & Warnings
While the withdrawal penalties still apply to many traditional CDs, depending on the product, some banks allow you to add funds to a certificate of deposit.
At the end of the term, you can roll a CD over and start a new period or redeem them for the cash and interest.
The Internal Revenue Service expects you to pay taxes on the interest earned on a certificate of deposit, so figure out the deduction before you cash out.
