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CD Interest Rates

CD's are investment vehicles that are characterized as low risk and low interest. However, their interest rate is higher than that of savings accounts; therefore many people use them as a type of a savings vehicle, rather than investment with the purpose of accumulating wealth.

How CD Interest Rates Work

The amount of the CD interest rate is determined by the maturity of the CD. The longer the maturities, the higher the interest rate will be. Alternatively, the shorter the maturities, the lower the interest rate will be.

The logic behind the relationship between maturity and interest rate is that when the maturities are shorter, the bank will have less time to use your money. On the other hand, longer maturities mean that you have made a commitment to the bank that you will leave the money with them for longer and thus they can use them.

Yet, there are cases when the short-term CD's short-term interest rate is the same as (or even higher than) the long-term one. This happens when the bank expects that in the future the interest rates will be lower and considers the current rates in general too high.

Short Term or Long Term CD - How to Choose

In order to determine which CD's are a better option you should use your sound judgment. Examine the time period over which you can lock your money. After this, find the CD with the terms that best suit your condition.

It is recommended that you invest in long-term CD's when you expect that the rates are going to decrease. The same is true when the rates are expected to stay the same. On the other hand, you should select short-term CD's when the rates are expected to increase. Under such conditions you may also select the investment in money market funds.

The good news with CD's is that even if you make the wrong choice it will not be a vital error.

Where to Shop for the Best CD Rates

Once you have made up your mind on what type of CD to choose, it is time to do some shopping.

  • Local Banks and Credit Unions

    Good sources for finding CD's are local banks and credit unions. CD's will be offered at a very beneficial rate if a financial entity is in need of money. When it needs deposits as soon as possible, the institution will attempt to attract your money with good rates. Most of the time, such offers are advertised in the local newspapers.

  • Brokerage Firms

    Brokerage firms also offer CD's, which may come at very beneficial terms and rates. Your financial advisor may be able to provide you with the possibility of investing in brokered CD's. These usually come in larger blocks. However, you should have in mind that if you want to sell the CD before the maturity date, it can come at a high cost. So, you should work with someone trustworthy and learn the basics.

  • The Internet

    You can also use the Internet to find good CD's deals. Some of the CD rate offered by banks can be found online. The offline banks usually come at a higher overhead than the online-only banks, so it is advisable to check the online opportunities you have.

  • Personal Finance Blogs

    This online source may be very valuable, since someone has found a good deal and is kind enough to share it with other people.

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