A certificate of deposit or CD can be a worthwhile, low-risk savings option. That said, CD issuers, typically banks and credit unions, can offer different interest rates. So, it is important to find a CD with a good interest rate. To do that, one might have to spend some time looking up CD options and comparing rates. But before doing that, learning certain key details about CDs can help one make an informed decision.

What is a Certificate of Deposit (CD)?

A certificate of deposit or CD is a promissory note issued by a bank. It is a savings certificate with a fixed interest rate and a fixed maturity date. Until you meet the maturity date of the investment, access to the CD is restricted. However, money can be withdrawn at the expense of an early withdrawal penalty. A certificate of deposit is a time deposit and thus, restricts the holder from withdrawing funds on demand.

A CD can be issued in any denomination. Typically, CDs are issued by commercial banks and insured by the Federal Deposit Insurance Corporation (FDIC) up to a limit of $250,000 per person. Issued electronically, a CD might renew automatically upon reaching maturity. Upon maturity, the entire principal amount and earned interest are available for withdrawal.

How to get the highest CD rates?

Now that you’re a little better acquainted with the certificate of deposit concept, it’s time to check out the ways to grab the best bank CD rates. Here are some effective ways to ensure you get the best CD rates:

Avoid early withdrawal penalties

No matter from what institution your CD has been issued, you should avoid early withdrawal penalties. Yes, it’s possible to withdraw money before the maturity date but at the expense of incurring an “early withdrawal penalty.” The total amount charged in the form of penalty varies based on the duration and the issuer of the concerned CD.
What’s worth noting is that early withdrawal penalties are often imposed by cutting interest rate for a specific period. For instance, a bank might deduct six months of interest on a CD of 5 years duration with an APY (Annual Percentage Yield) of about 3%. Therefore, in any case, you need to avoid making early withdrawals from a CD account to ensure your returns are maximized.

Go for long-term CDs

CDs are available in a range of time frames. Certificate of deposits with a longer duration also offer higher interest rates. Most CDs with a 1-year term offer a small interest rate of about 1%. As the duration of the CD increases, the interest rate also shoots higher. However, it might not be possible for everyone interested in investing in a CD to go for those with longer durations.
To choose the best CD or CDs as per your time and investment constraints, you need to compare all the options you have at hand. The Internet serves a great asset in checking out the various CDs, their duration, and interest rates all at the same time. Moreover, you can use an online CD rates calculator to choose from the best CD rates available.

Open multiple CDs

A smart way to maximize returns you get from the certificate of deposits is by investing in a number of CDs. Yes, opting for a number of CDs with different time duration is a great option to give you the flexibility if there is some unavoidable financial emergency.
Among all the CDs that you can choose from, you need to divide them into two groups; one group comprising those CDs that you will not withdraw from during your hour of need and the second comprising those that you could compromise when you run into some financial urgency. You can check out the 10 best CD rates near your location to find the most opportune options.

Opt for jumbo CD rates

Opting for the best jumbo CD rates is a great way to make the most out of the certificate of deposits. Most institutions presenting CDs offer standard and jumbo rates. As jumbo rates are higher, so is the duration of the CDs associated with them. Moreover, there might be higher early withdrawal penalties than standard CDs. Therefore, you need to decide judiciously whether to go for them or not.

Make use of opportune CD laddering

CD laddering is a preferred method adopted by professionals dealing with CDs. The approach allows investors to enhance rates that they get without fearing early withdrawal penalties. CD laddering is apt for taking the most out of the best CD rates and upcoming CD rates. Constructing a CD laddering approach takes a great deal of time and research. Hence, you need to double check the option.
CD laddering is different from opening multiple CDs in a way that its goal is to own multiple long-term certificates of deposit with one CD maturing every year during the whole period. For example, a 5-year CD laddering translates to getting a mature CD five times, i.e. each year during the whole duration.