FAQs about CDs

Before you purchase CDs, you will need to determine which would be the best for you in terms of amount of investment, type, and maturity. You will also need to do some research in order to find the best CD rates available. Below are some of the most commonly asked questions about CDs.

What are typical CD terms?

A certificate of deposit will possess terms such as amount of deposit required, length of time before maturity, and interest rate that is paid and the timing of the CD interest payment.

What are some different types of CDs?

  • 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.
  • 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 increases during your investment time period.
  • Liquid CD. Liquid CDs allow you to withdraw a portion of your funds without a penalty.
  • Zero-Coupon CD. These CDs do not have an annual interest payout. Instead, they reinvest those payments and allow you to earn interest on the deposit plus the accrued 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 you are given your deposit amount back, plus any interest that is due.
  • Brokered CD. Brokered 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.

What entities issue CDs?

You can purchase CDs from a bank, credit union, or brokerage firm. In addition, many online financial institutions now offer CDs for purchase online.

Where can you find the best CD rates?

In order to compare interest rates, you can visit some local banks, credit unions, and other financial institutions. Credit union CD rates may be higher than those from a local bank because credit unions must pay out returns to their members. Brokered CDs also typically pay higher interest rates. You can also compare CD rates online.

What is an IRA CD?

Some financial institutions market products called IRA CDs. However, these are really just CDs that are placed inside of an IRA retirement account.

What is a jumbo CD?

A jumbo certificate of deposit is a CD that is issued in a very large denomination. Jumbo CDs typically have a minimum required deposit of $50,000 to $100,000. These large CDs, usually purchased by large investors, are considered to be low risk and stable investments. Otherwise, jumbo CDs possess the same characteristics as regular certificates of deposit.

What is a CD ladder?

By laddering certificates of deposit, you spread out your investment into several CDs, all with different maturities. By doing so, you can take advantage of the good CD rates offered by the longer term CDs, while still maintaining the advantage of having CDs come due more frequently.

Read More:

  • Best CD Rates – find the best CD interest rates for your investment
  • CD laddering: how to structure the maturities of certificates of deposit to increase CD yield and ensure that you have access to funds when you need them.
  • CD Rate Calculator:  how to calculate the interest return on CDs.
  • CD Interest Rates: important facts to know about CD interest rates.
  • CD Penalties:  potential CD penalties that any investor needs to watch out for.