The Best CD Rates
It occurred to us here at Online Banks Blog that some of our readers may be new to the world of certificates of deposit (CD) and maybe an introduction to how they work and how to get the best CD rates would be in order. Finding the best CD today is the goal of most certificate investors, so let’s look at how CDs work.
A CD is a certificate (note) of deposit – it’s a guarantee note that says you’ve deposited $X in funds at Y bank. The certificate is a contract and lists how much was deposited, what the rate of return will be, and for what term that rate is guaranteed. So a 1-year CD for $500 at 2.50% APY will show a 1 year term with a $500 deposit and a payout of 2.50% or $12.50 for that term.
The reason that CDs are popular amongst investors is because they are guaranteed. The best CD rates will not yield extremely high returns when compared to many stocks or other investments, but because they’re guaranteed, they’re a great hedge against losses from riskier investments.
Often, for instance, an IRA account will put a percentage of itself into the best CD today so that three or five years from now, that money is guaranteed to still be there (with interest). The interest rate is also locked, so if rates plummet or fluctuate badly, the return is still guaranteed.
Hopefully this little tutorial has given you an idea of the options and reasons for using a certificate of deposit for your next investment.
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