If you’re searching for the best certificates of deposit (CD) rates, the number of options can be overwhelming. How do you know you’re getting the best deals and investing in the right place? Our team at Cathay Bank understands the struggle! We’ve compiled helpful tips and best practices when researching the most suitable rates.
Ready to learn more? Use this blog as your guide to receive the most interest for your deposit.
CDs are beneficial because they can be a safe, secure way to set aside funds for your short- and long-term financial goals, no matter what life stage you’re in. A CD may even offer higher interest rates and Annual Percentage Yield (APY) than a high-yield savings account or money market account if you choose the right option.
Why would a CD serve you and your family’s financial needs? For one, it can help you boost your retirement savings and wealth management plan.
CBS says that you should have at least three times your annual salary saved for retirement by the time you’re 40 years old in the United States. While this isn’t the rule for all people, as needs change based on the person, this is a good standard to aim for. Because saving for retirement can be difficult when thinking about the here and now, putting money into a CD and allowing it to increase over time can be a successful way to grow your nest egg with minimal risk or trouble.
By putting aside a certain amount of money, whether a small or large sum, you can gain a profit without having to put in extra thought or effort. Your money does the hard work for you while you go about your regular responsibilities.
When looking at your CD options at a credit union or bank, there are a few different factors to keep in mind:
The earnings you can expect to receive from a CD is the annual percentage yield (APY), and it’s normally expressed as a percentage. For example, you may find a CD that’s advertised to have a 1% APY, which means you’ll earn an extra 1% based on the money you put into this account. In this situation, if you have $100 in your CD, you’ll earn $1 for a total of $101. Ultimately, the higher the APY, the more money you’ll earn in return.
The APY is the real rate of return and is calculated periodically. Once the compounding interest is determined, it’s typically automatically added to the CD balance, creating a larger pool of money, and earning you higher interest over time.
Interest rates are the rates at which interest grows for CDs. While this is similar to APY, there’s one key differentiator. Whereas APY reflects the total amount of interest you’ll earn on money in a CD account over a specific period, the interest rate is the rate earned on the original amount. It’s also expressed as a percentage.
The APY will generally be higher because it includes the compound interest earned, but the interest rate is the steady return you can expect to get back from putting money into a CD, no matter how much you allocate for it.
Some financial institutions will charge a fee for early withdrawal. This is due to the fact that CDs are a fixed rate timed deposit account and designed to be a “set-it-and-forget-it” nest egg. Accessing the funds before the designated time due to financial emergencies can trigger fines. An early withdrawal penalty makes CDs unique from other types of savings’ accounts where you can grow your income while freely accessing your money.
Generally, a CD’s early withdrawal penalty is determined by the interest that would’ve earned over a specified number of days or months. The fines also depend on the financial institution and the terms that are set. For example, a CD with a longer term — like three or four years — may have higher penalties than short-term CDs of one year or less. The earlier into your term that you withdraw money, the more penalties you’ll likely have to pay.
When shopping around for CDs, it’s crucial to know what types of penalties may impact your rate of return.
The amount of money that must be deposited to open a CD account is the minimum deposit. Some financial institutions don’t have a minimum balance rule, while others require users to put in a particular amount. Typically, a financial institution will have a minimum deposit of around $500 to $1,000.
A jumbo CD is similar to a regular CD, but it requires a much higher minimum deposit. People looking to get this type of account will generally have to put in around $100,000 to get started.
As you look at your CD options, it’s beneficial to have a ballpark amount you’re looking to put into a CD so you can decide which financial institution will suit your needs. If you only have a small amount of savings you’d like to earn interest on, one that doesn’t have a minimum balance requirement may be best. If you have a larger sum you’re looking to grow, the required deposit won’t impact your decision as much.
Just like with any significant asset, having protection can provide you with peace of mind. Some financial institutions offer insurance options on your CD deposits should something go wrong outside of your control. Knowing what type of security, a financial institution offers can also aid in your decision-making process.
If a financial institution doesn’t offer protection, don’t fret. FDIC and NCUA insurance can cover losses if your financial institution experiences a situation that impacts your deposit.
Follow these helpful tips while doing your research:
Doing some quick internet searches can help you learn more about the CD rate options available to you, whether that be from large national banks or smaller local institutions. This is your chance to search through different styles of financial partners to determine which will deliver the best results for your specific needs.
While it’s not the only factor to consider, interest rates are an important element to weigh when comparing different CD rate choices. The highest rates won’t always get you the most return. Sometimes, a longer term might earn you a higher earning over time, as long as you’re comfortable with not accessing your money until that withdrawal limit is reached.
Oftentimes, a suitable financial advisor is right under your nose. Look through the local institutions in your area because they may offer a more competitive CD special than the national banks to attract new customers.
Don’t miss out on CD promotions or special rates that financial institutions offer from time to time. These deals can either be for standard terms or offer different lengths that you may not see often, such as 11 or 14 months. Just be sure to carefully consider a potential CD special and then act fast, as they often run for a short period.
While it’s not necessary to weigh multiple CD rates when deciding what bank or federal credit union to partner with, it does help you earn the most interest over the course of the CD term. CDs have fixed rates, meaning you’re promised a specific amount based on the rate, term length, and your account balance, no matter what.
So many aspects of CDs are determined by your bank or credit union, and how interest is calculated is one of those elements. Some financial institutions compound interest daily and credit it monthly, while others compound monthly and credit it quarterly or annually. Make sure you ask your financial institution which method they go by.
There are usually no fees for opening a CD. While some financial institutions have minimum deposits that must be put in, that money goes directly to the client’s account and earns them interest rather than going to the financial institution. Before opening an account, check with your financial partner about any potential expenses you may be held responsible for.
While bank and credit union CD options are the most common, a brokered CD is an investment you can make by purchasing a certificate of deposit through a brokerage firm or from a sales representative not partnered with a bank or federal credit union.
Cathay Bank offers competitive APY percentage rates, allowing you to get more back for your investment. Whether you’re saving funds for the future or have short-term financial goals you’re attempting to reach, having a fixed interest rate to rely on can be a critical source of income.
Learn more about our current rates by contacting a Cathay Bank Relationship Banker. For more tips on wealth management, digital banking, checking and savings account options, and credit card best practices, get in touch with us today.
This article does not constitute legal, accounting or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.
