When opening certificates of deposits, or CDs, it is highly recommended for the person wanting to save money to consult an investment professional. The upside to CDs, is that the interest rates are much better than what a regular savings account may offer. The downside is that unlike savings accounts, withdrawals come with a severe penalty and possibly other bank fees. Before a person gives up their electronic banking information, they should look at these factors.

When opening a CD with an online bank, it is important to know if the funds are protected by the Federal Deposit Insurance Corporation, or FDIC. Inside most bank branches this government agency’s logo is visible near the teller window and the signage normally states that all deposits up to $250,000 is protected by the federal government should a bank or the entire institution experience financial difficulty. Credit unions have the National Credit Union Administration, or NCUA as a branch of the federal government that protects the deposits of credit union members. When opening certificates of deposits, insurance protection details are normally specified both before the transaction is finalized and on paper. It is mandatory for all United States banks, savings and loans and credit unions to have insurance protection from a federal agency in order to operate.

While there are many online deals that offer substantial interest rates on CDs, some of these institutions are not insured by the FDIC or NCUA. However, this does not mean that they are a scam since countries outside of the States do have insurance protection that is mandated by a government agency, it is wise to do a little footwork to find out how the regulations will protect the consumer should hardships arise. If a person does not get simple, verifiable information about insurance protection that is backed by a government agency, they may want to take their business elsewhere.

Other factors that a person shopping for certificates of deposits are whether the interest rates are fixed or variable, how is compounding interest calculated, can interest be paid out or is it rolled over into another CD or does the financial institution reserve the right to close a CD or is it automatically renewed? It is also important to be realistic about the minimal amount of time that money can be kept in an account without making a withdrawal before time as there may be a window that can delay payouts. Finally, be certain as to how often statements for CDs will be received so that account holders can easily maintain records for future reference.