Certificates of deposit, also known as “CDs,” are generally looked upon as a conservative investment because they are:
- Safe
- Insured by the federal government
- Offer a stable rate of return
Part of the tradeoff for that safety is that the rate of return on CDs is not as high as the more the riskier investments. That said, when purchasing a CD, you will naturally want to get the best CD rates possible and get a high yield on your investment. It is possible to get a high yield certificate of deposit, if you are willing to do some research and know what you are looking for.
Finding the Best Certificates of Deposit
Here are a few tips you should keep in mind when looking for a high yield certificate of deposit.
- First, be sure you are ready to leave your money alone. High yield CDs generally require longer term requirement on the investment, and the best CD rates are usually on CDS with a term of three to five years or more. But the downside is, your money is tied up for a long period of time – so be sure you are able to do that. It does not do any good to have an interest-earning CD if you have a cash emergency before the term is up and need to pay a penalty for early withdrawal.
- Also, keep an eye on the maturity date of your CD. If you don’t redeem your CD on time, your bank may simply roll it over and you will lose your chance to reinvest for another term. As the saying goes – “If you snooze, you lose.”
- The FDIC insures deposits of up to $100,000 per depositor per bank. It’s wise to make sure you remain below the FDIC insurance limit when you are investing in CDs. If you have two $50,000 CDs, for example, you would want them to be at different banks. The FDIC website has more information.
- Finally, bear in mind that many high yield CDS have what is called a “call feature” which allows banks to terminate your CD before its maturity date if interest rates fall below a certain level. The higher the rate on a CD, the more likely it is to have a call feature, so be sure to check your banks’ policies before you sign up for CDs. If the best interest rate sounds too good to be true, it might just be.
