Certificates of deposit (CDs) are investment vehicles by which you leave your money on deposit at a bank for a determined period of time (usually three months to five years). During this time, you can't withdraw this money without paying a penalty.
In return for giving up your access to this money, the bank will pay you interest at a higher rate than what you'd get with a typical savings account. CD rates are fixed (as opposed to the variable rates you'll find with most savings accounts). In addition, you'll rarely be charged a monthly fee.
FDIC-insured CDs are incredibly safe investments.
Here's a list of the best online CD rates available today.
How to Find the Best CD Rates
Since this is an investment site, we talk frequently about various types of investments — risk investments, in particular — and the need to achieve a balanced and diversified portfolio. That balance is usually achieved by holding a certain percentage of your portfolio in safe, interest-bearing investments like certificates of deposit (CDs).
Just as is the case with stocks, mutual funds, exchange-traded funds and other risk-type investment assets, CDs offer a variety of yields.
How can you know where to get the highest return on your CDs? In truth, there is no single source of information on the subject.
A far better approach is to have several sources and to keep them handy. This will be especially important in a rising rate market, where you will want to get the latest and highest returns on your investment.
You can find information on CD rates in various places, and you should consider each in the decision to purchase or renew a certificate.
There are various websites that provide quick and easy access to updated CD rates. One of the most popular is Bankrate.com. This is an excellent site and one of the most respected in the industry.
Not only does Bankrate have an ongoing listing of CD rates by major banks, but you can also customize your search to fit specifically the type of CD you are looking for. You can decide if you want to be with a national or local bank and even the specific term that you want.
The site also has some valuable tools, including a CD calculator and a compound interest calculator, as well as informative articles.
RateBrain.com is another popular search for consumers looking to find the best CD rates to put their money into. You can compare certificates of deposit rates side-by-side when you click on the CD Rates tab.
There are hundreds of banks and financial institutions listed, depending on whether you need a 5 year, 7 year or even 10 years CD. You're bound to find a good interest rate at the bank that fits your needs.
If you'd rather receive updates on CD rates via email, RateBrain.com offers this option. This makes it easy to keep up with the latest rates to get the best interest for your money.
DepositAccounts.com is an excellent resource for calculating how much money you plan to put into a CD and how much interest it will earn over a specified period of time. This customized search will help you determine the right financial institution to put your money into so you can be sure you're getting the best deal.
It includes both local and national banks to choose from, including your estimated earnings over the course of having the CD open. Click on the CD Rates tab at the top of the site to get started comparing.
Check With Local Credit Unions
When shopping for higher-rate CDs, we usually think of banks, but credit unions often offer much better rates. In fact, you might even get preferred rates as a result of being a new customer.
When dealing with credit unions, it's important to understand that you need to be a member. Credit unions are bank-type organizations, built around customers and certain common characteristics. Often, the credit union members work in a certain industry, or even with a specific employer. Most will also have some sort of geographic limitation.
You may have to establish this membership status before you have access to the best rates the credit unions have available. It's often worth doing so because a credit union has consistently better rates of return than your own bank does.
Those common characteristics that credit unions require of the customers often result in lower default rates, which is why they can pay out higher interest.
Ask Your Broker
Brokers, especially large ones, commonly offer CDs issued by banks all over the country. The rates are not necessarily the best that those banks have — after all, they are reduced by a small amount in order to pay the broker.
Be that as it may, those rates may still be higher than anything you can get locally or at your own bank. CDs offered through a broker are just as easy to buy and sell as any other securities that you might exchange in the account.
Pay Attention to Advertised Rates
When looking for the best CD rates, never overlook the obvious. Look in local newspapers and be ready to jot down phone numbers of banks advertising on the radio or even on highway billboards. This is an excellent way to find high CD rates in your own local area.
Banks advertising in this way are particularly aggressive, which could result in higher rates than you can get from other sources — and who knows, you might even develop an entirely new banking relationship as a result.
Watch Out for Callable CDs and Non-Bank CDs
When you are shopping for the best CD rates, you also have to be careful that you don’t stumble into something you hadn’t anticipated. Two situations in particular that you should be on the lookout for are:
Callable CDs. These are CDs that offer the issuer right to call in the security at a certain interval. For example, a CD may be for 60 months, but there may be a provision that allows the issuer to withdraw the funds in the CD after 12 months. Naturally, they will do this if the rates fall. That will give them an escape hatch from paying you the higher rate.
Non-bank CDs. Not all CDs are issued by banks. Some may be annuities, marketed as CDs, but issued by insurance companies or investment firms. This means that the CDs probably don’t have FDIC insurance coverage in the event of a default. Since the safety of principal is one of the primary reasons for investing in CDs, that would generally make these investments unsuitable.
As with anything else you might get involved in, if it looks too good to be true, it probably is. If the interest rate on a given CD seems to be higher than it is for other CDs, your radar should be on high alert not only for callable CDs and non-bank CDs but also for outright scams. They’re out there!
Look for Specials From Your Own Bank
After you have searched the available sources — online sites, credit unions, your broker and public advertisements — it’s time to go back to your own bank. Though it may seem that your own bank is the logical first place to look, you’re actually better off to hold it until the end, when you have researched the alternatives.
Though your bank may publish rates on CDs, there is generally at least some wiggle room on the final results. If you know other institutions are paying higher rates — and you have written evidence of as much — you can present this to your bank to negotiate a better rate.
Since so many people simply roll over their CDs a continuous basis, often for many years, the bank may not think it has to work hard to keep your business, and often it doesn’t. But if you shake the trees and let your bank know you have access to better rates, it may reward you with a higher rate in an effort to keep you.
So as illogical as it sounds, resists the temptation to go to your own bank first and wait until you find out what competitors are offering.