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Certificate of Deposits (CD):A certificate of deposit (CD) is a longer term investment that will give you a much higher yield than having the money in your savings account. A CD is a non-liquid account unlike money market or savings accounts, but the interest you earn will be significantly higher than those types of accounts. A CD is often issued by banks but some people prefer to purchase them from a brokerage. You invest a fixed amount of money for a set amount of time (6 months, 1 year, 5 years) which is called the "term" and you are guaranteed your principal plus a fixed amount of interest. If you cash out your CD early, you will be penalized and definitely lose the interest as well as perhaps some of the principal. When the CD term matures, you have the option of either cashing out the principal and interest or "rolling over" the CD for another term. The longer the term that you go with, the higher the interest rate you will get. CDs are insured by the FDIC up to $100,000 ($250,000 on retirement accounts). You often hear financial advisors say you need an emergency fund set aside that has 3-6 months of living expenses in it. Putting this money into a certificate of deposit is a smart idea to earn the highest available CD interest rate.
Highest CD Rate:To find the current CD rate or the highest rates we went to Bankrate.com and Money Magazine to do our research. Even the Wall Street Journal publishes the latest and best CD rates from banks. You can quickly compare rates or use the rate calculators on these sites to find the best CD rate for your situation. The top CD rates fluctuate from week to week and month to month as market conditions change, so be sure to check back to these sites often for the highest yielding CD. See below for our quick comparison on the best 6 month CD rate, 1 year rate, and 5 years rate. Another popular option is the 1 Year Jumbo CD that we don't have listed below, but you can find information on most of the sites listed. For your convenience, you will find bank names and phone #'s where we could find them. We start with the best 6 Month CD rate (from Bankrate.com):
The Best 1 Year CD Rates (from Money Magazine - Nov/2006):
5 Year CD Rates (information from bank websites as of 10/26/2006):
6 Month vs 1 Year vs 5 Year CD Rates:As we discussed above, CDs are a great place to put extra money you would normally keep in a low interest bearing savings or money market account that you don't need immediate access to. CD rates are higher than savings accounts or money market accounts but are less liquid in nature. 6 month CDs are great for those emergency funds while 1 year or 5 year CDs are better for college savings that you don't need to touch for a long time. In unstable market conditions where stocks may not always perform that well, having savings in a CD is a smart move.
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