Opening a CD or a certificate of deposit, accounts have been one of the most popular forms of investment for quite some time. Understandably so because CDs, particularly a high interest CD, offers a relatively low-risk avenue for investment. And this is the primary appeal of certificate of deposit investment. However, there are a number of people out there who are either unsure of what a CD is, how it can benefit them and how finding the highest CD rates can benefit them in the short term and long term.
So the first question we want to broach is basic and that is what is a CD account? A CD account is a timed deposit financial product which is commonly purchased in the United States by banks and credit unions. CDs are similar to savings accounts in that they are insured and thus virtually risk-free. In the United States, CD accounts are typically insured up to $250,000. A CD bears a maturity rate and a fixed interest rate and the terms typically range from one to five years, though this can vary.
In the United States, CD accounts are typically insured up to $250,000.
High Yield CD Rates
While high yield CD rates have been suppressed in recent years due to the FDIC's monetary policies, you can still expect an interest rate of about one percent. In fact, the average rate for a one-year CD is 0.27%, but the best lenders offer higher rates. Determining the best cd account for you considers a few factors. The basic considerations are how much you plan to invest and for how long are you willing to hold your CD savings account. From there, you will want to select the high-interest CD rates that best fits your requirements. One thing to note is that typically you'll receive a higher interest rate the more money you choose to invest, which ultimately maximizes your earnings. You can play around with some figures using our tool at the top of the page.
High Interest CD
Deciding how much you want to deposit in a CD bank account is the biggest decision for most people, which is understandable because while most of us understand investments, interest rates and spending money to make up money, we are still wary of tying up an exorbitant amount of our incomes for months and years at a time. So determining how much you want to spend ultimately decides which institutions are available to you and, ultimately, how much you will earn.
For those on the conservative side, there are companies such as Ally and Capital One which allow minimum deposits as low as $1. For new or conservative investors, this is an ideal option to start. However, if you give our tool at the top of the page a look, you will notice that these two companies do not offer high-interest CD rates. Our tool is probably the best illustration of this situation that you will find. Of course, if you are feeling a bit bolder, you can EverBank or Synchrony who require $1,500 and $2,000 minimum deposits, respectively. And as you can see using our tool, they offer the highest cd rates.
...there are companies such as Ally and Capital One which allow minimum deposits as low as $1.
There are options for you moderates as well. Many investors are opting for CD ladders to gradually invest more money for longer periods of time. The concept is fairly simple. Let's say you want to invest $10,000 using a CD ladder. In this instance, an investor would invest $2,000 each into a 1-year CD rate, 2-year CD rate, 3-year CD rate, 4-year CD rate and 5-year CD rate. When the shortest term CD investment reaches maturity at the end of the first year, you would place the money into the 5-year CD investment. And you would continue that process until all of your money is invested in the longest term investment. This option allows for a bit of diversity in your investments and you are not necessarily required to invest the most recently available funds into the longest-term account once it reaches maturity. This allows for a bit more flexibility.
Finding the Highest CD Interest Rates
When it comes to certificates of deposit, everyone is interested in finding the highest yield CD. Yield is used interchangeably with interest rate and represents the return on your investment. Banks can choose to compound rates on a yearly, quarterly, monthly or even daily basis. However, most high yield CD rates are compounded annually.
For example, if you purchase a $10,000 CD with an interest rate of two percent compounded annually, you will make $200 at end of the year. Like we mentioned earlier, determining how much you want to invest has a direct correlation to how much you can ultimately earn. EverBank, who we previously mentioned, offers terms as short as three months and as long as 24 months. And their interest rates range from .55% to 2.23, and determining your rate will be largely dependent on your term length and deposit. You can fiddle with some numbers with our easy-to-use tool at the top of the page.
Fees and Penalties
It isn't uncommon for investors to have to withdraw their funds due to unforeseen circumstances. While this is rightly considered a worst-case scenario, needing to withdraw your funds prior to maturation is something to consider. Most certificates of deposit come with some sort of fee for early withdrawal and they vary depending on who you purchased it from. Typically, you should expect a charge of about three to six months. In some cases, the fees can be so significant; you may want to reconsider withdrawing your funds and finding another option.
CD Rates Comparison
There are a wide variety of options available to anyone interested in CDs and earning the highest bank CD rates. But those options can be confusing to novices and experienced investors alike, which is why we have tasked ourselves with bringing you the best industry insight coupled with our handy CD rate calculator. Like anything else, knowing what you want to accomplish provides the best path to success.