Get the Best Rates on CDs
Find the Highest Return on a Certificate of Deposit
With the stock market on a downward slide and real estate worsening, where do you put your money? Get the best return on one of the safest savings vehicles, a CD.
You could go down the street to your neighborhood bank and buy a CD. Or you could travel down the information super highway to an online bank and maybe get a better deal. With physical and virtual banks vying for your business, you have more choices than ever.
Why Buy a Certificate of Deposit?
A CD pays a better return than a simple savings account. But the drawback is that you have to sock your money away for a specified period of time…Anywhere from 6 months to 6 years or more. Not sure if you want to tie up your money for that long? Some banks offer no-penalty for early withdrawals. Sure, the interest rate won’t be as high and they might make you sign a bunch of papers before you can take your money out, but the freedom may be worth it. Especially if you are worried about job security or an emergency popping up.
What if Interest Rates Go up Right after You Purchase a CD?
If you’re worried about a rise in interest rates, look for a CD with a one time "bump up" clause. Some banks will allow you to literally bump up the CD’s interest rate. All you have to do is call the bank when you see that rates have gone up. Your return should rise accordingly. Usually lending institutions will only allow you to use this feature once during the life of the CD. So make sure you don’t take advantage of this opportunity too soon or too late. If you wait until right before your CD matures, you won’t really get to take advantage of the higher rate. And if you call the bank too soon, interest rates may go up more and you’ve already used your one-time "bump up." The best thing to do is to watch those interest rates and put on your calendar the exact date when your CD is halfway through maturity. For example, if your CD matures one year from today, make a note to call your bank six months from now. At that point, unless you have a strong suspicion interest rates will rise more, lock in your new rate.
Can You Negotiate a CD Rate?
Yes! If you feel better buying a CD at your neighborhood bank, but you found an internet bank with a higher return, talk to the people at your lending institution. They may match it to keep your business. Also, good customers usually get a slightly higher interest rate. Ask your bank if you qualify.
What Is an Alternative to a Certificate of Deposit?
Money markets don’t get as high a return as CDs but you can take your money out whenever you want. There might be a minimum investment required of $1,000 or more, but most banks don’t require you to keep that balance in the account. It’s not a substitute for a checking account, however. Most banks will only allow you to write three to five checks a month. You might get a warning the first time you go over, and then you may face a fine.
Read the fineprint before you open a money market account or purchase a CD. And most importantly, know the exact date when your CD matures. Write it in your palm pilot, your personal PC or an old fashioned calendar. But if you want your money, you usually have five days from that date to get it. Otherwise your CD will automatically reinvest at the same rate for the same terms as before.
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