Choosing the Right CD
In the face of economic struggles and a recession, more and more people are opting out of high risk investments and choosing safe, stable options. CDs, or Certificates of Deposit, are a popular choice. They are available in various denominations and for both short and long periods. While the return can be rather low, comparison shopping may allow you to find a better interest rate than you expect. CDs do offer a higher yield than a money market account or high yield savings account at your local bank and can still allow you relatively quick access to your money if needed. This is a safe investment choice, with $250,000 of Federal Deposit Insurance protection for buyers.
Investors should consider several factors before purchasing Certificates of Deposit online or via their local bank. First, be sure that you can afford to tie up your money. This is especially relevant if you are considering a longer term option, as early withdrawal penalties can apply. Consider using this investment choice for your mid range savings goals or to hold a portion of shorter term savings with a 30 or 90 day term. Longer term contracts will often offer a higher interest rate than shorter ones. Not surprisingly, higher investments typically offer a better return on your money.
Another key criteria in choosing the best investment for your money is whether you would prefer a fixed or variable interest rate. A fixed rate offers you a stable, set return on your savings. A variable rate may allow you a higher initial interest rate, but all terms should be spelled out, and you do accept the risk of a lower interest rate on your investment. Some banks retain the right to call in a Certificate of Deposit, leaving you looking for a new investment. While they can cancel the contract, you will be locked into the set rate until the end of the term. Death rights allow a heir to liquidate a CD with no early withdrawal penalties.
Once you have decided how much to invest and for how long, shopping around is the next critical step. Many people buy CDs from their local banks. Sometimes your usual bank will offer a special promotion with excellent interest rates or you may simply prefer to keep your money in a single location. Often, however, better interest rates can be had by comparison online and via brokerage firms. Http://www.bankrate.com offers an easy to use comparison chart with CD interest rates. Brokerage firms or deposit brokers may offer a better return, but it is important that you know specifically what bank owns your investment to avoid risking accounts that exceed deposit insurance limits.
Certificates of Deposit are a popular first investment. They are less confusing and complex than many options, while still offering a good return. Taking the time to compare rates and features can pay off in better terms and a better overall interest rate.