How to Pick the Right CD for You

When people talk about CD’s in the banking world, you may have guessed that they’re not typically discussing the music world. Certificates of Deposit, or CD’s, can seem to be a mysterious subject, so allow this blog to help to demystify them.

A CD is something you get from the bank when you deposit a certain amount of money for a specific agreed upon length of time. Think about it like a savings account that is on lockdown, and has insurance, which makes it considerably more risk-free. The insurance comes from the FDIC (Federal Deposit Insurance Corporation) or by the NCUA (National Credit Union Administration). Another difference from savings accounts is that FDICCertificates of Deposit have a fixed monthly, or yearly term, as well as a fixed interest rate. Usually the rate is designed to hold the certificate until it has matured and accrued the desired amount of interest. Some banks will even grant higher interest on your other accounts if you have a CD agreement with them.

When you are looking to get a CD, research different banks’ rates and terms before making your decision. You’re looking for the best deal, the one that will get you the biggest profit or benefit at the end of the term. For example, some banks will give a higher interest rate if the amount of money being held is high, and some will not. There are also some banks that offer different interest rates for personal versus commercial CD accounts.

Some banks and credit unions actually are not FDIC or NCUA insured, and will therefore often offer higher interest rates, but you have to weigh that against the lack of federal insurance.

Many see FDIC certificates of deposit as one of the lowest-risk investments that one can make. If you have cash that you don’t plan on spending for a while, a CD is not a bad idea to not only put that cash out of reach, but also get a return due to the interest on the CD account. Keep in mind the time frame of when you think you may need that money when looking at terms and rates.