Interest rates are dropping again, making it more and more difficult to find CDs that pay a reasonable interest rate. Even so, certificates of deposit continue to be the most important financial tool for many people. For some, a certificate of deposit is the best safe investment. Others invest in CDs to supplement their retirement income. But we all want to earn the highest interest rates on our certificates of deposit. (For more information about CDs, including investment tips from the Federal Deposit Insurance Corporation, read their article, Certificates of Deposit: Tips for Savers.)
Why are CDs so important? They are ultra-safe with no market risk a CD won't change in value if the stock market goes up or down. And, a CD is insured for as much as $100,000 by the FDIC. (NOTE: You can be fully insured for many times the $100,000 limit. To see how, go to our article, Is your CD as safe as you think?)
Because they are so safe, even the best interest rates for certificates of deposit are lower than most other investments (but the best rates for a CD are generally higher than the highest money market rates). How can you earn the best rates without increasing your risk?
Here's one solution avoid the trap many people fall into don't stay with the same bank year after year just because "I've always done my banking there" or "The people are so nice." By sticking with your old bank, you may miss the chance to earn the highest rates on your certificates of deposit.
Shop around for the best CDs. Check out other banks and saving institutions in your neighborhood, and in other states. Their rates are often higher than you can get locally. In fact, the highest rates offered by very safe banks can be as much as 40% higher than national averages sometimes more. (It's as easy to purchase a CD from an out-of-state bank as it is to purchase one locally. Call their toll-free number and ask for the information you need to open a certificate of deposit.)
Also check out the rates offered by online banks. They're often among the highest available. They don't have the "bricks and mortar" expenses (people, buildings, etc.) that local banks do, and pass along the savings in the form of higher rates. As long as they're insured by the FDIC, your deposits are just as safe as they would be at the bank down the street.
BankingMyWay.com is probably the best source of rates for certificates of deposit (CDs), IRAs, money market accounts, savings accounts, checking accounts, home mortgages, home equity loans, credit cards, auto loans and more. Developed by RateWatch, a 17 year old company that tracks rates from more than 30,000 financial institutions nationwide, BankingMyWay provides hundreds of rates on a local basis. Search by city, zip code or state. They report rates from community banks, credit unions, internet banks and mortgage companies. For more information, visit BankingMyWay.com.
Smart Money Tip #1. Before investing in a CD, check the financial institution's up-to-date financial strength (safety) ratings at TheStreet.com. (Type in the first name of the financial institution and make your selection from the results shown.) If you wish, you can download their comprehensive report that provides details about the financial institution's rating. TheStreet.com has also prepared ratings for insurance companies and HMOs as well as stocks, EFTs and mutual funds.
Smart Money Tip #2. Click on FDIC insurance to find out if your financial institution is covered.
Smart Money Tip #3. Sometimes it's difficult to find information about a particular bank, even if you live next door to it. That's because your local bank is often a branch of a larger financial organization. To learn more about your local bank, you first need to find out where it is headquartered. Go to the FDIC's online Bank Locator service. (NOTE: If you can't find the bank you're looking for listed in your state, set the Locator's "state" pull-down menu to All; then you can search nationally.)
Unfortunately, you may not always be able to buy a CD with ...