CDs And The Value Of Great Advice When Choosing One

Great advice will direct a depositor toward online CDs as a savings vehicle, because they are one of the best options on the market for earning a return on a safe and stable investment. A certificate of deposit (CD) is similar to a savings account, only the deposit is usually locked in for a specific fixed term such as 6-, 12-, or 24-months upward of 5 years. The interest rate is often fixed for that specific time period, although, not always, and CDs are usually NCUA (credit unions) or FDIC (banks) insured up to $250,000. The fixed term of deposit is one of the reasons that financial institutions are able to pay higher interest rates on CDs.

There are certain key features of CDs of which any depositor should know. As with any savings vehicle, a higher interest rate is desirable. Generally speaking, the larger the deposit being made, the higher the corresponding interest rate. The same is usually true of longer the fixed terms of the deposit, which often feature a higher interest rate. Smaller institutions are often able to offer better interest rates than larger banks and credit unions.

If your financial adviser or online resource directed you to an online bank, you have received great advice on how to start earning more money on your deposit accounts. Internet banks are often in a position to provide a more competitive interest rate for online CDs because they have lower overhead than traditional financial institutions. The Internet also provides a swift, convenient way of shopping for the best interest rate available. Of course, banks and credit unions are not the only entities, which sell online CDs. There are brokerage firms and deposit brokers who advertise competitive interest rates for certificates of deposit, which they are selling on behalf of a financial institution.

As you shop for the best online CDs, be sure to develop a solid investment strategy as well. Great advice with regard to CD investing is to use a CD ladder strategy. For example, an investor interested in a one-year ladder would initially purchase four CDs (3-, 6-, 9- and 12-month terms) at the same time. This way a CD would come to maturity every three months, and at that time the investor would then invest the money in a 12-month CD. The ultimate goal is to have four 12-month CDs; one coming to maturity every three months.

Ultimately, for safety and security it is difficult to top a certificate of deposit as an investment vehicle. Be sure to shop for competitive interest rates and to develop an investment strategy, which will enable you to earn the best rate of return.

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