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Shopping for the Best Certificate of Deposit Rates

Certificates of Deposits (CDs) are issued by large financial institutions, such as commercial banks, savings and loans, and other thrift institutions that aren’t in any danger of bankruptcy. Interest paid to CD holders depends on the current prime interest rate and the amount of the CD.

Certificates of deposit are considered to be as safe as savings accounts for amounts below $100,000. The advantage of CDs over savings accounts is that they pay more interest. CDs, however, are not as liquid as savings accounts because in return for receiving more interest, you agree to put off using the money you’ve invested for a specific period of time.

As a general rule, CDs offer higher returns than Treasury bills because CDs have a slightly higher risk. Treasury bills are negotiable debt obligation issued by the U.S. government, having a maturity of one year or less.

Treasury bills, called T-bills, are exempt from state and local taxes. The rate of return on Treasury bills is an investor benchmark. Returns that are greater than Treasury bills are considered good. Returns that are less than Treasury bills are considered poor.

Don’t forget to thoroughly investigate a CD before purchasing it. The following are a few things you need to consider when making your decision:

  • Terms and disclosures: Understand the terms and read the disclosure statement. For more about what to look for in the fine print, see Bankrate FAQs about CDs.

  • Maturity date: You don’t want to purchase a CD that matures in 20 years when you can only invest for 5 years. Conversely, you don’t want to forget to renew your two-year CD when it matures. For more information about this topic, see Bankrate.

  • Find out who the issuer is: Knowing who issued your CD and verifying that your deposit is insured by the FDIC are important factors. For more information on this topic, see the SEC Web site.

  • Call features: Don’t automatically assume that a one-year non-callable CD matures in one year. It doesn't. This disclaimer means that the CD issuer can’t redeem the CD during the first year. A one-year non-callable CD may still have a maturity date 15 or 20 years in the future.

  • Penalties for selling a CD before maturity: You can expect the penalty to be the loss of three to six months’ worth of interest income. For more details on early withdrawal penalties, see Bankrate.

  • Confirm the interest rate: Find out whether your CD’s interest rate is fixed or variable. The latter is called rising rate CD. Be sure to ask how often interest is paid because the frequency of interest payments affects your APY. Last but not least, find out whether you’ll receive interest payments by check or by an electronic transfer of funds.

For more information about CDs, or to discover where you can file a complaint, contact the FDIC Central Call Center at 877-275-3342.

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