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How to find the best rates on CDs

18th January 2018 Print

In the past, all you needed to do was compare CD rates from different financial institutions against the term you need and pick the highest yield. Today, however, it is not as simple as it seems, and you need to take a lot of factors into consideration. Banks are fast become savvier and comparing the interest rates on CDs won't cut it, you need to think strategically. Below are ways to help you find the best rates on CDs.

1. Credit Unions and Online Banks

Compared to traditional financial institutions, online banks and credit unions offer higher rates. When you look at most online banks, you will soon discover that their rates on CDs are significantly higher than your local banks and provide more benefits. Ordinarily, credit unions and online banks offer about 2.00% APY on a 5-year CD while local banks offer around 0.50% APY on the same 5-year CD. Credit unions, however, need you to be a member before you can open a CD account which can be very difficult. Do extensive online research to find competitive rates and credit unions that have minimum restrictions to become a member.

2. Go for Long-Term CDs

The long-term CDs guarantee higher returns when compared to short term CDs. Most people, however, are afraid of long-term commitments due to the early withdrawal penalties. This issue can be solved rather easily, but how do you do that? 

You just need to look for long-term CDs but with modest penalties in case of premature withdrawal. Using a CD rate calculator, you will quickly figure out that an average withdrawal penalty percentage on a long-term CD will leave you with more interest than a short-term CD. Do extensive research to ensure you pick a bank with very low withdrawal charges on long-term CDs; you never know whether you might ever want an early cash-out.

3. Open Multiple CDs

Do not just open a single CD but instead split the money and open several of them. This is a fantastic way to soften the blow of early penalties because most of the time you just need a portion of the money and not the whole pile. Most people have found themselves cashing the entire CD just to take out a small percentage. They will, therefore, need to start over with a new CD account which can be very frustrating.

4. Construct a CD Ladder

This is a successful strategy that allows you to get all the benefits of the high CD returns without having to feel the sting of early withdrawal. You only need to structure your multiple CDs in such a way that every year one on the CDs matures. For example, you could structure it so that every year a CD matures for five years with a 5-year CD. It will take you time to construct a CD ladder, and you should not be in any rush because it will pay off in the end.

With an excellent CD plan, you are guaranteed to high returns and low risk which is somewhat hard to find in this current low rate environment and economy. You do, however, need to ensure that you pick the right financial institution that best suits you and has the most favorable rates.