Offered by banks, CDs are deposits that banks pay a higher interest rate for because they are locked in for a longer period of time. CDs typically allow depositors to invest their cash in investments between three and five years, although some are even less (starting at one month) or can go up to 10 years. If you’ve got limited time, three years is a solid option, but remember – the longer the investment, the higher the yield, so you may want to opt for a five-year option. And while you may be able to receive monthly interest payments if you like, many investors choose to wait until their CDs have matured and cash in on the amassed interest at the end. And, as a plus, the FDIC will back your deposit up to $250,000 per person.

 Some features of Certificates of Deposit are:

  • A larger principal should/may receive a higher interest rate.
  • A longer term usually earns a higher interest rate, except in the case of an inverted yield curve (e.g., preceding a recession).
  • Smaller institutions tend to offer higher interest rates than larger ones.
  • Personal CD accounts generally receive higher interest rates than business CD accounts.
  • Banks and credit unions that are not insured by the FDIC or NCUA generally offer higher interest rates.

CDs typically require a minimum deposit, and may offer higher rates for larger deposits. The best rates are generally offered on “Jumbo CDs” with minimum deposits of $100,000.

The consumer who opens a CD may receive a paper certificate, but it is now common for a CD to consist simply of a book entry and an item shown in the consumer’s periodic bank statements. That is, there is often no “certificate” as such. Consumers who want a hard copy that verifies their CD purchase may request a paper statement from the bank, or print out their own from the financial institution’s online banking service.

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