CD Rates
What are Bank CDs (Certificates of Deposit)?
In today’s troubling savings environment there is a hard case to make for bank deposits. Their current interest rates, or APYs (annual percentage yields), are uncharacteristically low due to a few external factors. The main one being the fact that the Federal Reserve is keeping key rates at near zero levels in an attempt to stimulate borrowing amongst prospective home buyers and small businesses. And because of the direct correlation between loan rates and savings rates, when one is low the other is typically low as well. So now that we have an extremely low interest rate landscape for mortgages, we thus, have a low interest rate climate for savings accouts and bank CDs as well.
So Why Invest in a CD?
Despite their rates, consumers have still been flocking to these products as a safe haven for cash they would have otherwise kept as just that – cash. Rather than simply keeping large sums in a checking account, where they will be depreciating at the rate of inflation, a bank CD will at least help hedge against inflation by providing an, albeit rather small, interest rate. So with the stock market in disarray and gold seemingly near it’s peak, risk adverse savers (especially those deciding what to do with money in an IRA) are still relying on bank deposits as a risk free investment.
Why are Bank Deposits Risk Free?
Bank deposits are federally insured by the FDIC up to $250,000. Therefor, even if your bank happens to go belly up while you hold a deposit with them, the federal government will still pay you your principal WITH accrued interest up to $250,000. This limit was previously set at just $100k before the bank collapse of 2008. It is set to expire in 2012, but will likely get extended.
CD rates – Fixed or Variable?
Interest rates provided on these deposits are fixed rates. When you sign up for a, say 2 year CD, with an advertised interest rate of 2.0% APY, you will incur a fixed 2.0% yield until maturity.
Comparing CD Rates From Multiple Institutions
Most people searching for deposit products on the web, would like to know a few things about the prospective product before they commit to it. 1) What is the APY or annual percentage yield? Using our tables above you can compare APY’s of banks from around the country as well as credit unions to make sure your money is maximizing its utility. 2) What, if any, are the minimum deposit requirements? Many banks and credit unions will require you invest a minimum amount to open a CD with them. It usually varies between $0 and $10,000 with some banks offering a higher APY for “jumbo CDs.” A jumbo CD is anything over $100,000. 3) What is the bank’s overall health? Using our table above we have a 5 star health rating figure which can allow you to compare the health of your prospective new bank. Even though your money is FDIC insured, it’s still nice to know your bank is reliable and stable.
Credit Union CD Rates
Credit Unions are fundamentally different than banks in that they are not-for-profit institutions that have no shareholders to report to. In fact, they are typically member-owned, so the shareholders are the owners. This means that any profits derived from operations are returned back to the members in the form of higher savings rater, lower loan rates, reduced fees and new products. Their savings rates are usually better than brick and mortar banking instituions (especially the large national banks) but are usually on par with online banks that have litte overhead costs. Credit Unions are not always open to consumers nationwide though and many require that you fall into one of their selected groups in order to be eligible. These groups can be employment based, geographically based or based on any other demographic. Make sure your credit union CD is federally insured by the NCUA (the FDIC equivalent) before you open it.
Additional Resource: See how credit union CD rates are holding up in 2012.
