To truly find the best CD interest, you need to find out how often it is compounded. Most certificate of deposits compound quarterly which means that every 3 months, the amount of interest you have earned gets added on to the CD. You will then be getting interest on the new higher total from that point on. The same thing happens the next quarter where the new interest will be calculated and then added on to the CD.
While this may not seem like a lot, over time, compounding interest can make a huge difference. If you match at CD that compounds yearly (interest is only added in at the end of the year) to one that has interest compounding daily (interest is calculated and added into the CD every day), there will be a significant difference at the end of one year.
As mentioned, most CDs that you find will have interest that compounds quarterly as that is sort of the standard CD. However, if you look hard enough you may be able to find ones that compound more often and that may make a rate that looks worse actually be better.
Banks and financial institutions are coming out will all sorts of new things to interest investors and get their business. You need to pay close attention and always read the fine print of all things you sign up for and all places where you invest your money. Before you sign up for a no risk CD or any other investment vehicle, you should be asking questions and reading the fine print to make sure you understand what you are getting into.
With interest rates on CDs especially, you need to make sure you don't put your money in one that compounds yearly unless you do the math to make sure it is comparable to others that compound more frequently.
You can get the best interest rates at Lending Club by investing in prime borrowers. Now if you want to get the best interest rates on CDs or bonds, you are going to get a whole 1% or 2% interest at the most right now. Something very low at least that is hardly worth the trouble. This is where peer to peer lending comes in where people like you and me with money to lend are matched with people who want to borrow it at higher rates than you could get at a bank.
Lending Club is one of the big "people to people" lending companies online where you will get a much higher yield on your money than you could anywhere else. In this scenario, you are really acting as a bank and lending out money to people who need it. The Lending Club is the platform that lets the borrowers and lenders come together and work out a deal where both parties benefit.
Here is an example of how the Lending Club website works. If someone needs $10,000 to finish school and is having trouble getting a load in the traditional ways, they can come to Lending Club. If they have a good credit score of greater than the minimum FICO score of 660 and debt-to-income ratios not higher than 25%, among other good credit indicators, they might qualify for the $10,000 loan. They will see what rates they qualify for if accepted and then list their loan request on the website being careful to do a good job explaining their situation and why they need the loan. If you decide to lend money, it is really like you are giving the borrowers unsecured loans as all you are going by is their credit rating and history with Lending Club. There is no collateral put up by the borrower and you have only their good word and particular circumstances to make a your judgment off of.
Loaning money to what they call "prime borrowers" does not come without risk and it is up to each lender to only lend to the people they feel are the best risks and have the most chance of repaying the loan. The reward for this risk, though, is usually a return of between 6.7% and 19.37% which is much greater than you can get anywhere else. If you have some moeny in the bank just sitting there getting that 1%, it could be an option to give Lending Club a try. Of course it is best to be safe and you should never loan money in this fashion that you absolutely need to live on.
Disclaimer: I have not tried peer to peer lending.
This is good news for anyone who has money to invest in certificates of deposit and anyone looking for a no risk CD. Finding a place to put your money now days that is safe is very hard and thankfully the FDIC insurance was extended. Let's hope that it is extended even to a later date than 2013 and for more as inflation is eating away at everyone's money.
There still is a problem though with exactly how the $250,000 is calculated. On this page of the FDIC website it does seem to explain the limits quite clearly for joint accounts. However there are many different scenarios you can have with individual accounts and joint accounts and people want to be absolutely sure their money is guaranteed by the government.
If you have a combination of individual and joint checking, savings, and CD's like I do, you want to be sure you are covered up to $500,000 for two people. The problem is, I have gotten mixed answers from several people. The person at my bank said she believed my wife and I were covered up to $500,000 but she wasn't ABSOLUTELY sure. I then asked my stock broker and he said much the same thing: that we each get $250,000 so as long as we stay below $500,000 in each institution (not that we have that much) we should be alright. Again though, he wasn't ABSOLUTELY sure of it.
This is like everything else that comes from the government: it is confusing for a normal person to understand and the professionals who should know, don't. If you are looking for the best interest rates on CDs you also need to know what limits you are covered for and all the minute details that really could become a factor if the economy doesn't make a recovery. It is frightening all the mainstream big names banks that are in trouble right now and guaranteeing the safety of your hard earned savings is paramount.
We have never before (other than the stock market crash of 1929) thought of our banking institutions as vulnerable. The FDIC guarantee of $100,000 (now $250,000 until the end of 2009) has always been there but none of us ever really expected to have to think about it. Now though, we are seeing that any kind of bank, big or small, can get into trouble. Citigroup and Bank of America are two financial institutions that very few people probably ever thought would need help from the government in the form of a stimulus bailout.
So, this finds everyone of us that wants to invest our money and still sleep at night, scrambling around looking at our different options for no risk investing. Bank CD's have always been one of the safest vehicles and as just mentioned, they are guaranteed up to $250,000 at least through 12/31/09. But are they really risk free?
Interest rates on CDs are so low right now that a case can be made that no CD is risk free. What I mean by that is that when you factor in inflation, you are losing money with even the safest investments. Now most people are looking for a certificate of deposit that cannot lose any of the principle and that is their intent when they search for "no risk" CD's. Right now, anything guaranteed by FDIC is the safest and, although the economy is in shambles, the government guarantee is the best thing we have going.
But nothing is really guaranteed in life and if things get really bad, who knows whether the government can come through? It is only our tax dollars they have and things can and have spiralled down quickly. Inflation though is one of the biggest problems we face and it is only multiplied by the way our goverment is printing money. The common person tends to ignore inflation and that is one of the reasons the government can get away with all the things they do.
So, although you might be able to find some no risk CDs and feel good about it, remember that you are losing money on inflation. As long as interest rates are at this rock bottom level, it is very likely that you are still effectively losing purchasing power no matter where you put your money and how safe you think it is.
Both bankers and customers alike benefit a lot from this method because bankers are guaranteed to raise short term capital. At the same time, the customers have another way to save and let it earn interest while it stays with the bank.
Here are a couple of basic things you should know about your certificate of deposit:
1) A larger initial deposit has better chances of earning a larger interest rate.
2)The longer term or period it stays with the bank the higher interest rate you will receive.
3) Some small institutions may offer more than what a larger bank can give.
4) Business accounts earn considerably lesser than most personal accounts.
5) Banks and other financial institution that are not covered by the FDIC generally offer a high interest rate.
Although there is very little liquidity, a certificate of deposit is considered one of the more secure investments but it comes with a low interest rate. It has gotten a little tough these days to earn higher interest rates, especially since the Federal Reserve has driven the rates down. Commercial banks are charged a little lower than before by the government-controlled banks. And for as long as this continues, banks will also continue to reduce interest rates on your certificate of deposits.
However, the economy might just begin to do well and when that happens, interest rates on CDs will also shoot up. Since we are not sure when that will occur, we could choose the best yield on our CD’s with a term of no longer than 6 months to a year. That way, you can jump to a better offer once your CD matures.
You may want to take some of that CD money and dabble a little in the stock market if you want to get higher returns but that of course carries risk with it. Most people just let their CD's roll over into another CD automatically. Your bank or brokerage will do this for you and you never have to lift a finger. This is very nice of them but you know what, if you let your CD automatically roll over into another CD, your bank won't give you the highest rate they offer.
I discovered this several years ago when I happened to go into my bank just after one of my CD's had rolled over. I had more money to add to the CD and wanted to see if they could combine the old money with the new. My CD money was already in a new CD so I asked what rate I was getting on that money. I was shocked, and angered , when they quoted me a rate I knew was way too low.
I don't know why most banks won't give you the highest rate when your CD rolls over automatically. All I know is that when you get that notice in the mail that your bank CD is about to mature, you need to physically go into your bank and instruct them to open a new CD when it matures. That way you will be able to take advantage of any promotions they might be having and to figure out what time period will give you the best rate.
The Best CD rates are so low now that it hardly seems worth it but you still can get close to 2% for a 1year CD. If you don't go in to the bank and talk to them though, you might find next year that you have gotten much less than that.
Historically, if you had more money to invest, a lot more money, you could get a higher rate. A jumbo CD is any certificate of deposit that is $100,000 or larger. If you were willing to give that much to a bank, they could get you a better rate than if you had say, just $5000 or so to invest.
Typically, the more you have to invest, and the longer you are willing to invest it, the higher rate you can get. Right now though, a jumbo certificate of deposit doesn't pay more than a regular sized CD. That's how bad things are right now. It doesn't matter how much you have, you can only get so much for your money. And that rate is extremely low.
The best CD rates are so low now that it is very discouraging for all the people with money to invest. Can you imagine giving up $100,000 for a year and only getting a couple thousand back in interest? It hardly seems worth it and leaves you with very few alternatives if you want to invest that money safely. This is why the recession is hitting retirees very hard who count on investment income to pay for part of their expenses.
There always was that saying that "time is money" but right now time is very little money. If you have enough money to qualify for a jumbo CD you are very fortunate that you have the money but unfortunate that you can't really make the money work for you.
Banks get some of the money they have to loan from CD's or certificate of deposits. You can get a CD for different time periods such as 6 months, one year, two years, 5 years and up. When you buy a 2 year bank CD, the bank knows it has your money for two years. Likewise, it your get a CD for 5 years, they know they have 5 years to do whatever they want with your money. A bank is willing to reward you with the best CD rates if you are willing to loan them the money for longer periods of time.
Savings accounts are different from certificate of deposits and in many cases not much different than a checking account minus the checks. You put money in but you can take it out at any time with no penalty. Many people put money in and then take it out of their saving several times a month. That being said, the bank cannot loan the money out in savings accounts as easily because it is not locked in. For this, they are willing to give you some interest on your money but not near as much as with a CD because they have no guarantee you will not take the money out. That is why the best CD rates will always be found on the longest term CD's and saving accounts will never pay very much interest.
This is an unreal situation that puts anyone with money in a real quandry. US Treasurys have for years been the one place you could put big chunks of money and not worry about it. With bank CD's you always had the $100,000 cap at being guaranteed through FDIC and so if you had a lot more than that you had to put your money in CD's in multiple banks. Having money in many banks is a real hassle and by buying US Treasuries it was easy to not have to do that.
Now that the interest rates for US Treasuries are practically nothing, what do people do? I know I would not loan the US government money at those low rates just out of principle alone and there is no amount of finance advice that would ever persuade me to. There is no way I would give my money to Uncle Sam for a half a percent for a year. That is pretty much the same as loaning them money at no interest as far as I am concerned. The best CD rates you can find are still better than that and so now is the time to start looking I guess.
This again impresses upon you how damaging this recession is to older retired people who count on their interest income for their retirement. Anyone with any money to invest now is faced with getting almost zero return. Additionally, if you do have enough to make any money, Obama will surely be raising the interest income tax rates. Why even bother investing anymore?
First if all, the length of time you are willing to loan your money to the bank will be important in the interest rate you get. The longer the amount of time of the CD, the higher the rate (usually). The second very important thing that will influence the CD interest rates is the overall rate environment. For instance, the economy is really struggling right now and all rates are low. If you come back two or three years from now things might be different and all rates may be higher. You can do nothing about the rate environment but you can look around until you find the best CD interest rates in your area.
Not all bank CD rates are the same and you will find that the best CD rates vary from bank to bank. This can be for many reasons. Banking is a competitive business as is any other business and so one bank may be giving a slightly better rate than its competitors to try to get your business. Banks also have specials from time to time for the very same reason: to try to get new customers. That is why it is advantageous to shop around from bank to bank to find the best CD rates in your city or state. You never know what specials or promotions are being offered until you look around.
You may be able to find better CD rates at credit unions than banks. This because most credit unions are nonprofit organizations and thus they can afford to give a better rate because they are not trying to make money. It may be wise to join a credit union for this very purpose of getting good CD interest rates.
A final way to get the best CD rates is to invest as much money as you can to get the better rate. Most banks will give you a higher rate for putting more of your money in a CD and a lower rate for smaller CD's. This is another way of rewarding you if you bring them more business. So, the different banks in your area may have different deals on the amount of money you invest in a bank CD.
All these reasons add up to the fact that the best CD rates are changing all the time and may be at one bank one week and at another bank the next week. You may also find good interest rates at online banks too. If you have money to put in a CD, you need to do some work checking out all the different CD rates so that you can identify the one with the highest yield.
Certificate of deposits are some of the safest investments you can make. This is why it is recommended that seniors have most of their money in CD's or government bonds which have the least risk. Seniors live on a fixed income and most cannot risk losing any of their investment. CD's give them that risk free return although it is of course lower than they could get if they were to put it in a something that did have risk.
No risk equals low returns. That is how it has always been and it always will be. High risk, on the other hand, equals the opportunity to possibly have high returns but nothing is ever guaranteed. Just because you want to invest in no risk CD's does not mean that you can't shop around for the best CD rates. Not all banks give the same rates and sometimes different banks have promotions that will get you and extra quarter or half percent. It can pay to shop around.
CD's are guaranteed by the US government and the amount they are guaranteed up to has just risen from $100,000 to $250,000. If you have more than that you need to put your money in CD's in different banks. Because they are this safe, certificates of deposit will always have some of the lowest yields. You pay for safety with a low yield.
Not only should you look for the best CD interest rates at your local banks but you should also try to find better rates online. With online banking, you have the opportunity to get CD's from banks all over the country. These will all be risk free certificates of deposit up to $250,000 but you might be able to find the best CD rates somewhere online. With this many banks and institutions to choose from, it can get a little confusing.
Now that the economy is so bad, it might be a good idea to check the health of a bank before you buy one of their certificate of deposits. Yes, they will be guaranteed, but it is always preferable to be doing business with a bank that has a solid financial position. You might find the best CD rates at a bank that, upon further research, turns out to be one that could go bankrupt. What you do in this type of situation is up to you but if they go under it will be a hassle for you and you won't get that high yield you were counting on. Perhaps it is wiser to get a CD from a bank that will still be around when it is time for your CD to mature.
Right now, rates are very low and it is impossible to earn high interest. Unfortunately there is not much difference between the best CD interest rates and the poorest. Even though they are low, the one main advantage of CD's is that they are insured up to $250,000.00 by the federal government. Unlike stocks, where you can lose everything, CD's give you security and safety in exchange for the low interest rate.
Whether rates are low or high, and they do fluctuate over the years depending on many factors, it is always a good idea to look for the best CD interest rates because different banks do give different rates. If one bank is giving a rate of 3% and the bank across the street will give you 3.25%, why not cross the street for the little extra. Depending on how much you have to invest the difference might be worth the little extra work it took to find the better rate.
With the advent of the Internet, you can also search online very easily to find all the best CD rates and personal finance info. You can also get CD's online at many different banks and brokerage houses that all have an online presence. If you are shopping online for the highest CD interest rates it seems you can quickly and effortlessly determine where the best rates can be found.
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