Best CD Rates: What You Need to Know

Posted by  on Apr 14, 2010

Besides the maturity date, the interest rate and payment method, and the institution that issued the certificate of deposit, knowing some other details about your certificate of deposit can help you make a wise choice when searching for the best CD rate.

Callable CDs and Your Rights

With a callable CD, the issuing bank has the right to terminate the CD after a set period. While you do not have the same right, you have the right to receive the full amount that you deposited plus all of the interest that has accrued.

The maturity date of a callable CD might differ from the call period. Discuss this with your banker or broker selling the CD and make sure that you understand when the CD matures.

Variable Rate CDs

If you plan to buy a variable rate CD, learn the timing and the amount by which the interest rate might change. Some CDs have a rate structure that increases or decreases over time according to a schedule. Rates for some other CDs are tied to a given market index, such as the S&P 500, and vary according to that index's performance.

Know your CD's Penalties and Risks

Know about any early withdrawal penalties, in case you need to withdraw your funds from a CD before it matures.

If you buy your CD through a deposit broker (also known as a custodian), ask whether the broker can sell it. A broker who advertises that a CD has no penalty for early withdrawal might offer to sell it for you if you need the funds before the CD matures. You might be at risk, however, if interest rates have risen and the rate on your CD is no longer attractive. By selling at that point you could lose some of your investment.

So start searching the Web for the best CD rates, but keep these points in mind before you sign.

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