Comments on: Understanding CD Rates

By: Dennis

Dennis — Fri, 27 Feb 2009 14:21:20 +0000

Well, they don’t teach personal finance in school so I had to ask.

Trent – thanks for the explanation. Things are a bit clearer now.

By: Chetan

Chetan — Thu, 26 Feb 2009 15:19:03 +0000

If higher CD rates cause you to look up, you might want to consider MoneyAisle – read more at http://www.sense2cents.com/2008/12/01/max-out-your-savings-using-moneyaisle/

By: BloggingBanks

BloggingBanks — Thu, 26 Feb 2009 15:14:13 +0000

Great intro on CD rates Trent!

Best Regards,

BloggingBanks

By: Sandy

Sandy — Thu, 26 Feb 2009 13:47:29 +0000

We’ve had CDs for many years as our emergency fund. One thing that I would suggest to everyone is to always ask about special rates that the local bank that you deal with has to offer. For example, if you have a CD due, and forget about it, the bank will automatically roll over to the same time frame that you have, but at a lower, regular rate. When you actually go into the bank or CU, when your CD comes due, ask for any special rates. On the web site for my bank, it will say one thing, but when I go into my local branch, inevitably, they have a substantially higher rate available for, let’s say, 11 months, instead of 12, or 7 months instead of 6.
Also, keeping up with market conditions is critical. My daughter saved up $1000 from babysitting and odd jobs, and we went to the bank to open her first CD. The special options were shorter term CDs, earning 2.75, or a 24 month earning 4.25. Being somewhat aware of what’s going on (and the fact that she’ll be using it for college in a few years)I suggested to her to take the longer term view. I realize that that’s not always the case, but it really does pay to be up on what the Fed is up to.

By: the weakonomist

the weakonomist — Thu, 26 Feb 2009 13:16:13 +0000

As a member of the banking industry, I happily get to say this is a perfect explanation.

@Gwen, technically speaking, yes Timed Deposits are the same.

Sadly, I have to agree with Dave on why personal finance should be taught in schools.

By: Jennifer

Jennifer — Thu, 26 Feb 2009 11:49:06 +0000

I work for Wachovia. A Time Deposit is the same thing as a CD. A CD is just a guarantee to keep the funds on deposit for a certain length of “Time” and in return you’ll get a guaranteed rate of return.

All financial institutions, by Federal Regulation, must quote APY (Annual Percentage Yield), so that the consumer can compare apples to apples when looking at bank interest rates. This APY always takes into account the compounding method whether it’s Simple, Daily, Continuous, Monthly, Quarterly or Annually. (An APY of 2.75% will yield you the same amount at the end of the year, regardless of how the financial institution compounds and posts interest.)

One other important thing to consider and confirm with your financial institution is whether you receive all accrued (built up) interest that has not yet posted to your account when you close the account. For example, I recall a credit union that I have dealt with for many years which does not pay out interest accrued if you close the account before the interest is posted at the end of the quarter.

By: George

George — Wed, 25 Feb 2009 22:26:31 +0000

If you’re willing to take a touch more risk than a CD, many stable companies are offering decent dividend rates now. For instance, Pepsi (PEP) is yielding 3.40% at today’s share price and they’ve got enough cash on hand to maintain the current dividend for awhile. There are reasonably solid companies yielding much higher (e.g. MLPs such as APU, NRP, and OKS), but they come with more investment risk.

Yes, there are definitely reasons for owning CDs, just pointing out that it might be possible, in a manner of speaking, to have your cake and eat it to. Just choose your risk allocations appropriately.

By: Anthony

Anthony — Wed, 25 Feb 2009 22:11:24 +0000

The other thing to keep in mind is to make sure you’re comparing apples to apples. Some places will quote the APY, credit unions usually use a dividend rate and some places will even show an APR.

By: Anthony

Anthony — Wed, 25 Feb 2009 21:59:57 +0000

I recently had to roll over a maturing 12-month CD from ING, and was pretty disappointed with ING’s current yields. After doing a bit of digging, I found that all of the local credit unions (and some of the smaller-ish banks) were yielding much higher returns – in fact, I rolled it over to another 12-month at 3.60% APY at the local CU!

I’ve been a little disappointed with Bankrate as of late, and have instead been checking out rates at local credit unions and banks against Internet banks. I’m curious to know where rates are in other parts of the country.

By: Dave

Dave — Wed, 25 Feb 2009 21:53:22 +0000

No offense to Dennis… but this is exactly why personal finance needs to be mandatory in schools.

By: Gwen

Gwen — Wed, 25 Feb 2009 21:28:19 +0000

Wachovia is going to timed deposits instead of CD’s. Is it the same thing?

By: !wanda

!wanda — Wed, 25 Feb 2009 20:54:03 +0000

My savings account currently earns 2.45% (at HSBC). I’ve searched for the best CD rates online, but I’ve never heard of most of the banks that offer CDs that earn much higher than that. How can I tell if a bank is sketchy or not? Even if the account is FDIC-insured, I still don’t want to deal with a bank that might go under or one that won’t deal with me fairly.

By: Jesse

Jesse — Wed, 25 Feb 2009 20:51:34 +0000

The other thing you have to consider is that for 1 year (or longer) CDs, you are locked in at that interest rate. The rates between consecutive 3 month (or shorter terms in general) could change and possibly be an advantage.

When the times are a changin’ it may be best to consider what the interest rates could potentially be at the end of each term option.

By: Michele

Michele — Wed, 25 Feb 2009 20:42:41 +0000

One thing I have noticed about my credit union is that they often have member specials where a shorter term CD does often have a higher rate. Unlike your example above, they sometimes have special teaser rates to get members to invest. For example, Navy Federal currently has a special 1-year paying 3.75% while longer term ones are less. Make sure you look at all rates if you are interested in investing in a CD.

By: Frugal Dad

Frugal Dad — Wed, 25 Feb 2009 20:41:08 +0000

Good explanation. This a good example of why I like the idea of laddering CDs. I like to know that I am only three months from having access to money in a CD, so the first year I bought a 3-month, 6-month, 9-month and 12-month CD.

When the 3-month CD matured, I took the money plus interest and rolled it into a 12-month CD. When the six-month CD matured, I rolled the proceeds into another 12-month CD and so forth. By continuing this ladder I always have a CD coming due in the next three months, while taking advantage of the higher 12-month CD rates.