Author: Heather Vale
July 31, 2023
Topics:
InvestmentsYou might know that a certificate of deposit (CD) can pay you a nice return. But did you know the various factors that determine those rates, and how to maximize your earnings?
What do you do when you want to build your savings and maximize the interest rate you can earn … and you don’t need access to your money all the time? One option is to open a certificate of deposit (CD), which is like a cross between a long-term investment and a savings account.
CDs usually pay you a higher interest rate than most savings accounts. But in exchange for that return, you agree to leave your money untouched for a set period of time, or “term,” which could be anywhere from a few months to several years.
A CD reaches maturity at the end of that fixed term. Trying to take your money before it’s mature is like pulling a half-baked cake from the oven, and typically results in an early withdrawal penalty.
Opening a CD is as easy as depositing your money with a financial institution and committing to the term. The general rule is that the longer you can leave your money, the more interest you’ll make.
CD interest rates are often described as an annual percentage yield (APY) because they earn compound interest. These rates are deliberately attractive because the bank is borrowing your money, kind of like a reverse loan. At the end of the term, you can withdraw the principal and the interest you’ve earned, or roll it over into a new CD.
Banks use the phrase “certificate of deposit,” but member-owned credit unions often call them “share certificates,” or just certificates. Depositors who keep their money in bank CDs are FDIC-insured, with the Federal Deposit Insurance Corporation (FDIC), and those who keep credit union certificates are backed by the National Credit Union Administration (NCUA). But no matter what they’re called, or whether they’re insured by the FDIC or NCUA, they function in essentially the same way.
Several factors determine CD rates, including the amount you deposit, the length of the CD term, the current national interest rates, and the financial institution itself.
To maximize your CD interest rates, there are a few strategies you can take.
CDs are a relatively safe form of investment since the return is guaranteed and the depositor is FDIC-insured. However, there are always considerations to keep in mind before tying up large sums of money.
CD rates are determined by several things, including term length, financial institution policies, market conditions and economic factors. To get the highest rates possible, you should shop around, look for promotions, and consider larger or longer-term CDs.
Then compare the CD rates from different banks and credit unions. And finally, choose a financial institution that you trust. You can start that exploration by checking out the jumbo CD options with Credit One Bank. These financial products offer competitive rates that are among the highest in the industry.
About the author:
Heather ValeFor over a quarter of a century, Heather has been working as a journalist in all media: TV, radio, print, and online. After establishing her career in Toronto, she has been living, working, and playing in Las Vegas for the past decade. She loves pulling apart complicated topics to make them simple, fun, and easy to understand, especially in the business and financial niches. But she also enjoys writing about the personal side of life, including success, relationships, families, and pets. She approaches everything from a yin-yang perspective, so her passion for wordplay and entertaining metaphors is always balanced with an intense (and some would say annoying) focus on facts and accuracy.
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.