Certificate of deposit rates updated daily.
CDs, also known as "certificates of deposit," can be purchased at banks, credit unions and thrift stores and are an example of an investment very similar to a savings account, but with a few key differences. The primary way that CDs differ from savings accounts is the fact that CDs are purchased for a specific period of time, or term (generally ranging from three months to five years), at interest rates (or "CD rates") that the CDs will yield until maturity.
Yet another way that certificates of deposit differ from a savings account or money market checking account is that you can be "punished" by your financial institution for making an early withdrawal. Once your CD has been issued by the bank, it is technically the bank's money until the maturity date arrives.
Most often, CD rates are at a fixed interest rate, but there are instances where CDs will come with a variable rate of return.
Because CDs are an investment product, one of the most important things you should take under consideration is the interest rate. This factor, more than any other, is what you should focus on when "shopping around" for the best deal at various financial institutions.
While there are exceptions to every rule, there are a few to keep in mind when purchasing certificates of deposit. First, the larger the CDs principle is, the higher the rate of return will most likely be. Secondly, the longer the term of the CD is, the higher the yield should be. Smaller financial institutions tend to offer more attractive rates than larger banks can. Personal CDs often pay out higher rates than business CDs do. And, finally, you can earn higher interest rates by purchasing CDs from banks or credit unions that don't offer FDIC or NCUA insurance. However, these CDs come with a greater risk.
It's important to understand that not all CDs are created equal. Just as financial institutions vary from one to the next, so do their terms and conditions. Before you sign on the dotted line, there are some questions that you should ask. Can the financial institution close the CD before the term ends? This is known as being "callable". How is the interest paid out - as it accrues or is it left to accumulate? When does the CD begin earning interest - immediately or at the beginning of the next quarter? What is the penalty for early withdrawal? Are there any additional fees? What is the bank's policy regarding automatic renewal?
Once you gain a deeper understand of how CDs work, you'll be better able to make them a profitable part of your investment portfolio.