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3 Month CD | 6 Month CD | 1 Year CD | 18 Month CD
2 Year CD | 3 Year CD | 4 Year CD | 5 Year CD
A Certificate of Deposit (CD) is a time deposit issued by a bank earning a specified interest rate over the period of time you select, based on available options. CDs are issued with varying maturities and rates by institutions such as state or national banks or state or federal savings and loan institutions. Certificates of Deposit require committing money to an account with a financial institution for a designated period of time and are ordinarily FDIC insured. The best certificate of deposit rates are often available for sums as little as $500. CDs are one of the bedrocks of the banking world and come in many different sizes and shapes.
While most Certificate of Deposit rates are nationally advertised, it may be possible to get higher CD rates by auctioned CDs. Zions Direct, for example, manages CD auctions on behalf of FDIC-insured banks.
Certificates of deposit come in various terms with the rate generally rising with the length of the CD term. As a result, a 5 year Certificate of Deposit will generally provide a higher rate than a 3 month CD.
3-month and 6-month Certificates of Deposit do not offer returns that dramatically exceed those in online savings and money market accounts, money market funds and auction rate securities. 1-year certificates of deposit offer a significant rate premium over shorter term CDs and many other cash equivalents, and there are small incremental gains to 2-year and 3-year CDs. However, investors in higher tax states may find that the actual premium in these securities over state and local tax-free agency bonds or US Treasuries is small or non-existent.
While longer term CDs usually pay the highest cd rates, they also require investors lock their money up for an extended period of time. Longer term CDs therefore have significant risk of raising interest rates. If investing in longer term CD, you should review redemption conditions; some CDs can be redeemed before expiration with a significant penalty.
Investors can also build CD Ladders, which allow investors to diversify their portfolio with a range of cd maturities. This provides investors with a steady stream of guaranteed income and reduces interest rate risk.
A brokerage CD is a Certificate of Deposit sold through a brokerage like Fidelity, Charles Schwab, or TD Ameritrade. Banks issue large blocks of CDs to brokerages, who then break the blocks up to re-sell to their customers. Because the brokerages purchase the CDs in large blocks, they are able to negotiate higher CD rates than an individual customer can get from a bank. The brokerages generally re-sell the CDs to their customers without fees.
The Certificate of Deposit Account Registry Service allows CD depositors to receive up to $50,000,000 in FDIC insurance. It does this by breaking the deposit into smaller amounts that are under the FDIC limits and spreading it to other participating FDIC insured banks. CDARS can often provide competitive CD rates.