Certificate of Deposit Interest Rates
Before you purchase a certificate of deposit (CD) take a close look at the interest rates that are available. Certificate of Deposit interest rates are very important because they determine the amount of money you will actually make on your investment. There is a lot more to CD interest rates than you could imagine.
CD interest rates vary with the amount of money being invested. In most cases, there is a $500 minimum when purchasing a CD. The financial institution that you are dealing with determines the maximum investment amount as well as the actual interest rate that you receive. Usually, the interest rate is determined not only by the amount of your investment, but also by the length of time that you invest your money for. A small investment plus a small investment period equals a small return on that investment. Many financial institutions will offer higher interest rates for a longer investment period.
If you are looking to obtain a higher interest rate there are a few things that you can try. Try using a smaller bank. Bigger banks tend to compete with other big banks so you may not get the best interest rate possible. If you are willing to take the risk, you could also purchase a CD that is not secured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association. They tend to have higher interest rates because there is no added cost to insure them. Finally, purchase a personal CD rather than a business CD. They also tend to carry higher interest rates.
If you decide to withdraw your money before the CD reaches maturity, you will be assessed an early withdrawal fee. However, in most cases you do have the option of periodically withdrawing any interest that is earned on your CD. Be advised though that doing so will decrease the overall return on your CD. You are actually decreasing the amount of money that is earning interest for you. Your best bet is to leave it alone until the CD expires. Let your interest rate make money for you.
Most CDs are automatically assigned a fixed rate but in some cases they are assigned a variable rate also. There is also what is called the "bump-up" or no penalty feature available with some CDs. A "bump-up" or no penalty CD gives you a one time opportunity to switch your current interest rate to a higher interest rate, without being assessed a penalty, before your CD matures. Without the bump up option, you would have to withdraw the funds from the current CD and reinvest them into a new CD. You would then be charged an early withdrawal penalty.
When you decide to purchase a CD, make sure you do some homework first. Compare different financial institutions to determine which one has the best rates. You will want to take the term of the CD and any restrictions into consideration too but the interest rate will ultimately determine how much money you really make.
