Types of Certificates of Deposit – CD Types

When choosing your investment and seeking the highest CD rates, you will also need to be aware that there are several types of CDs to choose from, they are available from a broad range of issuers. These types of CDs include:

  • Traditional CD. With a traditional CD, you receive a fixed interest rate that is set for a specific period of time. When that time expires, the CD matures. At that time, you can either withdraw your funds or you can reinvest it into a new certificate of deposit.
  • Bump-Up CD. This type of CD will allow you to trade your current certificate of deposit interest rate with one that is higher if the rate on the new CD increase during your investment time period.
  • Liquid CD. Liquid CDs allow you to withdraw a portion of your funds without a penalty. In return for the liquidity feature, this type of CD offers a lower interest rate.
  • Zero-Coupon CD. These CDs do not have an annual interest payout. Instead, they reinvest those payments and allow you to earn interest on a larger deposit in total. When compared to other types of CDs, a zero-coupon CD has a higher rate of interest.
  • Callable CD. A callable certificate of deposit can be recalled by the bank after a certain amount of time has passed. If your CD is called, your deposit plus your interest earned will be paid to you at that time. Because of the callable feature, financial institutions generally offer higher interest rates on callable CDs.
  • Brokered CDBrokered CDs are sold by brokerage firms. This type of CD has a higher interest rate than those offered by banks due to the fact that brokerage firms must compete nationwide for their investments. However, you will have to balance the higher interest rate on a brokered CD with the fee that most brokerage firms charge you to purchase the CD through your brokerage account.

Regardless of what type of CD you decide upon, be sure that you know and understand the rate of interest that you will receive and read disclosure statement. Read newspaper advertisements, visit local financial institutions, and do research online in order to find the best deals on CD rates.

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