Does My Principal Affect CD Rates?

The thought of investing in the stock market makes you go weak in the knees so more conservative options like CDs are your choice. The few things you know about investing in CDs appeal to you. The fact that they are low risk, guaranteed to generate a rate of return, your principal will be left intact, and the FDIC insures up to $250,000 is a plus for you. However, the interest rates seem fairly low and that makes you wonder, if you invest more principal will that affect your CD rate?

Typically, CD rates are not affected by the principal amount invested. The two factors that determine the profitability on a CD is the length of the CD and the current interest rate. In general terms, the longer the investment time of a CD – the higher interest rate the bank will pay you. Of course, there are exceptions to this rule and you need to investigate your investment options wisely.

Because it is time and current interest rate, not principal, that affects CD rates – there are certain ways to use those conditions to your advantage. If you don’t need to touch your money for a long time and you find a high CD rate, feel free to invest your money for the long haul. If you notice CD rates are low, feel free to invest your money into a short term CD.

In general, principal does not affect a CD rate. However, if you have a sizeable amount of money it may give you a bit of negotiating power – but don’t bet your luck on that.