Q Dear Rick:
How do I research credible institutions that offer CDs?
Sandy
A Dear Sandy:
I love the fact that you want to shop CDs. I believe it pays for most investors to shop CDs around the country. You would be surprised the difference in rates once you begin to shop around. In today’s low interest rate environment, if you can receive a higher interest rate, why not. After all, the extra money you’ll earn stays in your pocket and as far as I’m concerned, that’s exactly where it belongs.
In researching CDs, the first thing that I would tell you is that you should limit your search to federally insured financial institutions. With a federally insured financial institution, if the bank runs into difficulty and is shut down, your money would be protected. That is not the case with all CDs. Some CDs, particularly those issued by banks and financial institutions out of the country, are not federally insured and when those institutions run into trouble, your money is at risk. When you buy a CD, by nature you are saying you are a conservative investor for this money and you want it to be protected. The sure way to ensure that money is protected it to only use a federally insured institution.
In shopping for CDs, one of the best places I use is www.bankrate.com. On bankrate.com all the CDs are federally insured. This website allows you to shop CDs from federally insured institutions throughout the country. Their database is up to date and it would be the place that I would recommend you go to shop for CDs. This site also includes a variety of federally insured internet banks that tend to pay a little higher rate of return than the traditional brick and mortar bank.
People may be leery of using an internet bank, but they shouldn’t be. If it is federally insured they are protected.
In addition to bankrate.com, I would also recommend that you contact your local credit union. Credit union CDs are also insured and in many situations, credit unions tend to pay higher rates of return.
In shopping for CDs, the first question that I would ask myself is how long do I want to lock up the money? One thing you’ll notice when you go on bankrate.com is that the bank that may have the best rate for a six-month CD is not the same bank that has the best rate for a one-year CD. Therefore, to make shopping for a CD as easy as possible, you want to know the length of time you are committing for before you do your research. For most people in today’s world, my advice is that I probably would not lock up a CD for longer than one year because, I believe interest rates will rise over the next year. Therefore, it doesn’t make sense to lock in for a long period of time when interest rates are so low. I believe if you wait, a year from now you will see CDs paying higher rates of return, and that is why I don’t want to go into a CD more than one year at this point in time.
When it comes to buying CDs, most people end up going to their local bank because it’s easier. In the past, using an out-of-state bank or an internet bank may have been difficult but that is no longer the case today. I think you will find that using an internet or out-of-state bank is very simple and most importantly, it can result in you having more money in your pocket, exactly where it belongs.
Good luck!