CD rates are continuing their trend downwards. It doesn’t appear that 2013 is going to bring much relief. So what can you do to maximize your certificate of deposit interest rates? Here are 5 tips that can help you and hopefully squeak out just a bit more earnings.
1. Use the Web to Compare CD Rates
The internet is a treasure trove of information. Many banks and finance sites allow you to compare CD rates across the nation, and some even let you tailor your search to a region or city. Personally, I don’t limit my area, but I do ensure that each bank or credit union is federally insured. The last thing you want is to have your money tied up in some off-shore bank.
Tailor your search based on what type of CD investment you want. If you’re looking to invest amounts in excess of $50,000, for example, try searching for “jumbo CD rates.” You can also try “best CD rates” or “IRA CD rates.”
However, before making a deposit, remember the old adage: “If it seems to good to be true, it probably is.” Make sure the bank is federally insured by the FDIC or that the credit union is federally insured by the NCUA.
2. Check Local Bank and Credit Union CD Rates
After spending time searching, you should have some ammunition for phone calls. Pick-up the Yellow Pages or newspaper and call local banks and credit unions. Some may be willing to match or beat the best CD rates that you found. If they are, then you are able to keep your deposits local. In addition, you may feel better looking across the desk and being able to chat with someone personally.
3. Meet with Branch Managers
Branch mangers often have incentives for bringing in new deposits. Their pay may be linked to the growth of their branch, so if you sit down with them and indicate your desire to open a new account, especially if it is a substantial deposit, you may get better CD interest rates then you would have otherwise.
They often have some authority over the rates and if you make them an attractive offer, they can probably make it happen. This is probably most effective with community banks and credit unions. Moreover, if you are potentially bringing them some loan business as well, they may be extra excited.
4. Call Local Brokers
Local brokers may have some CD deals available to them, especially if some big money center banks are courting the brokered market.
Many large banks don’t want to deal with small deposits, so they create a Master CD that is sold in small pieces. The bank is able to deal with a single, large CD and thus, may pay a little bit of a premium. One of the potential draw backs to local brokers is CDs don’t pay as high as a commission as other investments. Thus, they will probably try to sell you something else first.
5. Try Alternative CD products
Some banks offer CDs that don’t necessarily have a set rate for a set term. Some of these CDs may offer a better overall interest rate than a traditional account.
Step-Up CD: Basically, during the term of the CD, there is a predetermined time when the rate increases. This could be something like a 16-month CD, where every 4-months the rate increases. In general the start rate is lower than a fixed term counter part put the average of the steps will be higher. The CD could have a call feature so read all of the details.
Bump-Up CD: These CDs give the depositor an option to increase the rate during the term if the bank’s rates move up. However, the problem with these type of CDs is first, you have to constantly monitor rates. Second, the bank actually has to move the rates on the term you purchased. If you purchased a special term such as a 37-month CD and the bank never raises their 37-month rates, you won’t be able to bump up your CD.
Indexed CD: An indexed or market-linked CD rate is tied to some sort of index such as the DOW, S&P, NIKKEI, etc. Your rate is calculated based on average changes in the index during the term. This type of CD allows people to participate in the stock market while remaining protected by the FDIC.
A typical CD may be a 5-year term tied to the average change in the S&P. So if when the CD is opened the S&P is at 1200, that is the starting point. Indexed CDs often look at quarterly changes. So if in the first quarter, it moves to 1250 that would be a gain of 4.16%. If during the second quarter it dropped to 1225 that would be a loss of 2%. Then back up and maybe back down. The changes would be averaged and that would be your yield for the first year.
Sometimes these CDs have a floor, which means it won’t pay less than a certain percentage and some have a ceiling–they won’t pay above that level. They are often tied to more than one index and can get quite complicated. Make sure you read all of the offering details. And I do mean ALL.