If you have some extra money that you would like to invest, bank CDs (Certificate of Deposits) are a safe space for your money, and they can earn interest with minimal risk to you. Finding the best CD rates does take time and effort, but you need to know what influences a CD to figure out how to get the best rates. There are several factors, such as market rates and the length of time you will invest your money for. There are also deals that occur if the bank is trying to get some short term business from new customers. How you shop, what you look for and where you find it all determine whether you can find the best rates.
Read on for tips to maximize the return on your CD investment.
Length of Investment
The length of time you decide to invest your money for will determine the return that you get back on that cash. The longer the investment, the better the return. The sacrifice is in liquidity. When you have a substantial sum, finding a space to grow it usually means tying the money up while it grows. This can stop you from shopping for a home or looking for a car.
In these situations, it’s best to search for CD interest rates for different periods of time. Say that you have $30,000 you are looking to save. If you put all $30,000 in a five year CD you’ll get a good return but you can’t touch the money for five years. If you stagger that $30,000 into five payments of $6,000 a piece, you can either reinvest or use the money as needed. Also, always keep an eye on fluctuations of CD rates.
The best way to know the rates you’re shopping around for is to keep an eye on the markets. When times are good, rates will be higher and you can find better deals. When the market is low, you generally won’t find the best returns. That doesn’t mean you can’t use a long term CD to recoup some of those losses if you can’t find spectacular rates, it just limits your ability to save. Keep an eye on trends and save constantly if you want to get the best deal.
Competition among Institutions
When institutions compete, you win. The old adage holds true for CDs as well as the retail checking account. Better rates come to those who enter a competitive market. Aside from competing banks, credit unions may offer a better rate if you can get into one. The key here is patience and persistence. Get in the habit of tracking rates daily on the major finance sites like Bankrate or CNN Money. These sources are there to help consumers shop around with minimal effort. Track rates for a few days to a week so you can be sure you’re buying at the right time.
Remember that rates can fluctuate because of factors you can’t see too. If you see changes up or down, wait it out and see if the trends turn in your favor.
Multiple Streams of Income
The best businesses create multiple streams of income to support themselves, and so the best retirement plans use some of the same principles. Aside from CDs, mutual funds and high-interest accounts are low risk havens to grow your money. Remember too that IRAs and 401k plans are tax deductible, and contributions you make toward these plans are tax deferred. If you have dependents, consider life insurance to help pay for college or cover the costs of rent or a mortgage. Term life policies are good to cover the family while kids go to college, but whole life policies actually have some benefits you can withdraw to help with expenses in life too.
Whatever the plan that works for you, don’t rely too much on one source of income.
What to Ask
If you’re shopping for CDs, knowing what to ask before you buy will help you find good rates at banks you trust.
1. What is the amount of interest added to your amount, and what is the yield after interest has been included?
2. For how long will you need to invest for the rate to be effective?
3. Is there a minimum deposit requirement?
4. Can you make payments to add to your account?
5. What is the actual interest you will receive when the funds mature?
6. Is there a penalty for withdrawing funds before they mature?
7. What kind of security does the bank use? What precautions are in place to prevent fraud?
8. What about mobile banking?
9. What is your plan to avoid rolling over a CD that matures? Will you reinvest, or move the money elsewhere?
10. Will you receive other benefits at the bank for becoming a CD customer?
Ask your banker, and don’t be afraid of online institutions. These new institutions likely have lower rates with less overhead.