CD’s And The Best Interest Rates
In financial terms CD represents “certificate of deposit” and is what is known as a time deposit. It is issued by a financial institution and entitles the holder to interest accrued in exchange for maintaining the funds deposited for a specific term with restricted freedom to withdraw.
CD terms can be set for 3 months, 6 months, 12 months, up to 5 years or even longer. CDs redeemed before their maturity date are subject to penalties or forfeiture of a portion of the interest that has been earned.
Usually CDs require a minimum deposit. Higher interest rates are sometimes provided for bigger deposits although many financial institutions offer lower rates for CDs that are larger than $100,000, which is considered a Jumbo CD. Account holders who withdraw their deposit before maturity can suffer stiff penalties in the form of months of interest losses.
CDs can also be procured through a deposit broker. Generally, these brokerage firms are able to negotiate slightly higher than average 3 month CD rates in exchange for bringing in a certain amount of deposits to the financial institution that issues the certificates. Brokered CDs are often marketed as being free from prepayment penalties.
This is because the broker purchases the CD in larger denominations then is able to split it up and sell it to several unrelated investors. Should one of these investors decide to cash in their CD before maturity, the broker can venture to resell the CD at times for a profit. FDIC insurance also applies to brokered CDs, however in the event the financial institution fails, these take considerably longer to claim.
Withdrawing funds before maturity generally incurs a substantial penalty, often resulting in the loss of several months’ worth of accrued interest. These fines are in place to discourage the CD holder from cashing in their certificate before the specified term.
Payout of CDs can be arranged to be periodically mailed as checks or transferred in to a designated account, usually these options need to be specified upon purchase of the CD. When the CD is set to mature, banks will notify the holder with instructions and the alternative to rollover the principal and accumulated interest to a new CD. This subsequently ties up funds for another term, allowing it to earn interest but preventing its withdrawal by the CD holder.
Check out the best CD rates at Consumers Credit Union CD Rates and Bank of Oklahoma CD Rates
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