FAQ : Certificate of Deposit Accounts
What does laddering a CD mean?
Certificate of deposit accounts can provide high interest rates in addition to a relative amount of liquidity by using a strategy called laddering.
What Interest Rate do CDs Earn?
If you are not familiar with how certificates of deposit work you are not alone. Generally speaking, when you buy a certificate of deposit you will in essence be loaning a specified amount of money to the bank. In return, you will earn interest for the amount of time that you have agreed upon. In most cases, if you decide to take out your money before the certificate of deposit expires you will have to pay a penalty. When shopping for a certificate of deposit it is important to make sure that the interest rate is fixed. This is true in most cases, but there are some certificates of deposit that offer adjustable rates instead.
Are CD Accounts FDIC Insured?
When buying a certificate of deposit you should be careful of whom you are dealing with. Many amateurs get caught up with brokers, and this is not a good situation. The only people who should buy certificates of deposit from brokers are those with experience. If you are simply looking to buy a certificate of deposit you should consider doing so from a local bank. This way your money will be FDIC insured up to $100,000 in most cases.
You should also know that the terms of a certificate of deposit range anywhere from one month to more than five years. You can decide on which term is best for you based on two factors. First and foremost, when will you need your money back? If you can afford to have your money tied up long term you might as well go with a long term certificate of deposit so that you can get the best interest rate. Additionally, consider the rates that are being offered on the different terms. You may find out that there is not that much of a difference between 6 and 12 months, etc.
How do I find the Best CD Rates?
Finding the best rates on a certificate of deposit is not nearly as hard as it once was. In today’s day and age, all you have to do is go on the internet and you can find plenty of information on certificate of deposit rates. Not only are there sites that offer information on a variety of different institutions, but each bank website will also have details on their certificates of deposit. Remember, you do not have to limit yourself to doing business with a local bank.