The Best Rate CDs Will reach Maturity, Refresher Course

There are several key features to a bank CD.  One clearly being FDIC insurance.  Bank CDs are one of the most safe and secure investments available, as long as the bank accounts remain within the FDIC insurance limits.  A CD is one of many interest bearing bank products, the difference on CDs is the customer funds are deposited for a fixed period of time.  The advantage or return for the customer who is giving up access to their funds for a period of time is higher yields.  The interest rate paid on CDs are generally the best rates paid on bank products.  In order to obtain the best CD rate it is necessary to compare the products and terms at the bank and compare banks within the region the customer is shopping as the environment in the banking industry has become highly competitive for customer accounts.  Competitive banks lead to higher interest rate products for those consumers willing to shop and compare. 

Though bank CDs are fixed term investments, if an investor in a bank CD does need acces to their funds early they are not entirely illiquid.  An interest penalty is applied for any withdrawal prior to the maturity date.  The amount of the early withdrawal penalty will vary form bank to bank.  Along with ther term of the CD and interest rate it is important to understand the early penalty withdrawal amount that would be assessed in the event that the CD is cashed out prior to maturity.

The maturity date of a CD is a feature that can often be overlooked.  Most all CD account holders and shoppers study the term but pay less attention to the actual maturity date.  A better understanding of the maturity date on a CD account will help an investor avoid lower returns and maximize profit over time.  The goal of shopping and comparing CDs is to maximize the interest rate paid or yield, not realizing the maturity of a CD can reduce the overall rate of return.  Understanding the maturity date and time will also help to appreciate that time is a fundamental factor when investing money in all categories of investment vehicles.

When a CD matures, any remainig accrued interest is added to the existing deposit or balance.  The CD account holder may then withdraw the total amount of money in the account or choose not to withdraw the money on deposit.  If the CD account holder chooses not to withdraw the funds, the CD will automatically rollover for the same time period or similar time period, at the interest rate applicable at the time of rollover.  The Cd may rollover to a similar time period since the terms and conditions on an odd month CD may state that wkhen it does mature and rollover it does so to the nearest standard termd CD.  The interest rate at the time of rollover may be more or less than the interest at the time the CD was initiated or last rolled over.  The account holder will generally have the option to choose, upon the maturity date, to add additional money or reduce the amount of money in the CD, and then open a new CD for a different length of time.

The significance of the maturity date is heightened for CD comparison shoppers.  Many banks that offer the best CD rates do so for either a limited time or on the odd month CDs.  To clarify the issue, odd month CDs are generally defined as those bank CDs that do fall in increments of 6 month.  A 7 month CD or a 13 month CD or 25 month CD would all be considered odd month CDs.  When these CDs mature they generally rollover into the nearest standard term CD which may have a measurably lower interest rate than the original odd month CD.  Even when the best CD rate is not an odd month CD the bank offer may be a limited time promotion to attract deposits.  When the promotion ends, the CD rates that are offered by the bank may be appreciably lower than the original promotion CD rate.  In either case the key concern is whether or not to rollover the CD into the same or similar CD at that bank.  If the rates are meaningfully different, the best option is to shop and compare CD rates and apply the maturing CD funds to the current best CD rates.  Whether the best CD rates now being offered is at the rollover account with the present bank or with a different term CD at the bank or at a different bank altogether it is best to know the interest rate environment prior to the CD maturity.

There are many other ways to benefit from the security and high rates offered by bank certificates of deposit.  The key is to understand the product and be aware of the market for these products.  Timing should not be ignored regarding the availability of rates and the maturity dates of the investment.  Bank CDs are indispensable tool in an investment portfolio and knowledge of these products will assure that the investor obtains the full benefits they posses.

This entry was posted on Tuesday, November 11th, 2008 at 3:10 pm and is filed under Money Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.