CD Yield, What It Means For You

By: EconomyWatch Content Team   Date: 26 February 2010

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EconomyWatch Content Team

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A CD yield refers to the amount of interest that comes with a certificate of deposit. CD rates and interest rates are closely linked. In most cases a CD that has a longer term, such as for five years will provide a higher yield then a shorter term one such as six months or one year.

A certificate of deposit is an excellent way to invest money, especially if you have never invested before and are a little apprehensive about doing so. CDs are FDIC insured, which means that if the financial institution you start the CD account with fails, your money, will not be lost. This is not generally that much of a concern with larger national banks but can be a problem with smaller local or regional banks.

In order to get the best CD yield possible you need to know what is happening in the economy. To be an informed investor and to lock in the absolute best rates around you must know what is happening. It is worth knowing that when the Federal Reserve decides to lower interest rates that rates for certificate of deposits also go down. You should lock in your CD rates before this takes place. If you do not then the rate of return you will get will be greatly reduced. This is not what you want to happen with the money you worked hard to save!

Think about the finish line for your certificate of deposit. With that let thoughts of the CD yield enter your mind. To get the yield that makes you happiest and does your investment proud you need to shop around for the very best rate from the very beginning. Not all financial institutions offer the same rates. In fact in the same town the rates can vary tremendously! That is why you must take it upon yourself to scrutinize every bank and credit union that is in your community.  One bank may offer very high yield CDs while another might have rates that border on horrendous. You will not know until you begin to search for yourself.

Think carefully about the term you want for your CD. Before you lock in your investment consider how long you can do without the money. If you think you might need it in a short time period such as less than a year than choose a three or six month CD. However if you have the luxury of not needing the money right away then choose the absolute best available rate and go for a CD yield of a longer duration.
 


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