Compare CD Rates Methods

By: EconomyWatch Content Team   Date: 25 February 2010

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If you have been thinking about investing in CDs, one of the most important steps in the process is to compare CD rates.  After all, the way in which you will make money with an investment of this type is with interest.  Therefore, you need to have the ability to see the rates being offered through different financial institutions.  Otherwise, you would be investing your hard-earned money and get nothing in return.

Remember, while there are a number of different ways to save money, CDs, which is the acronym for “Certificates of Deposit” are not just safe but also versatile.  CDs can be secured with banks, credit unions, and even online financial institutions but keep in mind that only government entities would offer FDIC insurance.  Therefore, you would have protection through banks and online financial institutions but not with credit unions.  Even so, if the amount of money being invested is minimal, it might be worth your time to compare CD rates through credit unions too.

To compare CD rates, you need to go through some specific steps to include the following:

·    Learn about the different dynamics of a Certificate of Deposit.  This type of investment is one in which you invest money that is held by the bank or credit union for a determined amount of time.  During this period, your money would earn a fixed interest rate.  Because CDs are held for a longer amount of time than other types of investments, financial institutions pay higher interest.  Once the CD reaches the end of the set amount of time, which is known as the “maturity date”, you could withdraw the money or roll it into another CD.  You can take money out prior to that time but you would be penalized for doing so.

·    The next step is to compare CD rates, regardless of the issuer and the amount being invested.  Remember, the more money you are willing to invest the more interest the issuer would pay.  For this reason, as you begin to process to compare CD rates, look at what each bank or credit union would pay for various investment amounts.

·    As you compare CD rates, you might also look at what are known as “liquid CDs”, which is much the same as a regular Certificate of Deposit but in this case, early withdrawal would not result in a penalty.  However, these CDs will still yield the most money the longer the money is left untouched.

·    Then, as a part of the process to compare CD rates, you might talk to the issuer about any tax advantages since some CD products do have tax deferrals.

You will find during the process to compare CD rates you will discover that some quotes for interest are significantly different.  Often, this has a direct correlation to the operating cost of the bank or credit union.  If they need more money to operate the business they are going to pay lower interest whereas if operating costs were minimal, the amount of interest paid on the CD would be higher.  This is why spending time to compare CD rates is so important.


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