Are Certificates of Deposits the Best Choice for You?

Are Certificates of Deposits the Best Choice for You?

Are you looking for ways to invest your money with little risk? A certificate of deposit – or CD – may be right for you. With a CD, you deposit a sum of money at the bank for a predetermined period of time. The bank promises a set interest rate, allowing your money to grow.  Nearly all banks and financial institutions offer certificates of deposits. However, CD interest rates can vary drastically from bank to bank. 

How does a certificate of deposit work?

When you open a CD account at a bank or other financial institution, you are agreeing to leave a certain amount of money untouched for a set period of time. Generally, your CD investment can range between six months and six years, although different banks may have different terms. 

During the time your money is deposited at the bank, you cannot make withdrawals. Generally, the longer it sits, the longer it can earn interest. Banks set CD interest rates based on the market; the higher the interest rate, the bigger your return. 

There are a few different types of CDs you can choose from. These are:

·      Standard CD – The traditional certificate of deposit. It typically features a fixed interest rate, fixed term and an early withdrawal penalty. Some banks may have minimum deposit requirements $500 – $1,500. Most standard CDs do not allow you to add money after you make the initial deposit. 

·      High Yield CD This certificate of deposit generally has the best interest rates, resulting in a higher return on your investment.

·      Jumbo CD – This CD requires a larger minimum deposit, typically between $50,000 and $100,000. Even the best jumbo CD rates are not as good as high yield rates.

What are CD interest rates?

In exchange for opening a certificate of deposit, the bank or financial institution applies an interest rate. Interest affects the rate at which your money will grow while it is in the bank. Certificate of deposit rates vary by bank.

For example, Wells Fargo CD rates can reach as high as 1.30% if you enroll in their step-rate CDs. This option has a rising interest rate throughout the term, which can span up to 24 months. 

as well as the following factors:

1.     The certificate of deposit term.

2.     The current market (what interest rates other banks are offering).

3.     The anticipated rate of return.

Generally, the longer you leave your money deposited at the bank, the higher the interest rate. Certificate of deposit rates average between .10 and .90%, depending on the term and the deposit amount. 

There are different types of CD interest rates that you can choose from. Some banks may offer various types of interest rates, while others may only have one. 

A standard certificate of deposit comes with a fixed rate, which means the bank or financial institution cannot change the rate during the length of the term. This is one of the lowest-risk CD options; if interest rates drop across the market, you are locked into your higher rate.

Some banks allow you to make a CD investment that has a variable interest rate option, which means the interest rate changes throughout the term. It is susceptible to increases and decreases based on the market. 

Variable CD interest rates could provide you with a higher return if the rate increases. However, they are also risky, since you could wind up with a lower interest rate than what you started with.

How much interest can you earn?

A high yield CD is designed to provide the highest return possible. The total amount of interest you can earn with a certificate of deposit depends on the interest rate, the amount of money you invest and the investment term. 

Typically, you will earn the most amount of interest on CDs with larger deposits, longer terms and higher interest rates.

Will you lose money when you open a certificate of deposit?

No, a certificate of deposit cannot lose money. Your investment is guaranteed by the bank or financial institution. If you open a standard CD, you are protected up to $250,0000 by the FDIC (for banks) and the NCUA (for credit unions).

What are the best certificates of deposit rates available?

You can open a certificate of deposit at various banks, credit unions and financial institutions throughout the country. Certificate of deposit rates may differ between institutions. 

The best CD interest rates often come from banks that operate fully online, but that isn’t always the case. Take a look at the following certificate of deposit rates, which are among the most popular CDs in the United States:

·      Marcus by Goldman Sachs – The Marcus CD rates are some of the best rates among high-yield CDs. You can get started with as little as $500. The current Goldman Sachs CD rates reach as high as .80% for five-year terms.

·      Consumers Credit Union – Looking for a certificate of deposit with a low minimum deposit? Consumers Credit Union has CDs available for just $250 deposits. It also has some of the best credit union CD rates in the country. One-year rates are as high as .45% while 5-year terms reach up to .70%.

·      TIAA Bank – TIAA Bank CD rates for standard CDs is very similar to its competitors’ high-yield CDs. Currently, TIAA Bank offers 1-year CDs with an interest rate of .55%. However, you’ll need to meet the minimum deposit requirement of $1,000 to access this rate.

Things to Consider Before Choosing a Certificate of Deposit

Before opening a certificate of deposit, it is important to consider some personal details to make sure it’s the right money move for you. For example, knowing how much money you are willing to invest plays a big role in determining the right CD. Some banks require you to make a minimum deposit that could be in the thousands. 

Another thing to consider is the interest. Are you interested in fixed CD interest rates, or would you prefer the chance to score a higher rate with a variable APR? It may be riskier, but it could yield a much higher return.You should always compare CD investment options before opening an account. You may find a bank that offers higher rates, lower minimum deposits and better overall terms.

By Admin