CD Rates

FDIC insured CDs A CD, or certificate of deposit, is like a savings account, only you can earn higher interest if you keep your money in the account for a certain period of time. With a CD, you deposit a certain amount of money into an account and leave it for a fixed amount of time - six months, one year, two years, or longer. As long as you keep your money in the CD, the bank pays you interest periodically. Getting the best CD rates ensures you get maximum yield from your investment.

CD Interest Rates

When the lender discusses your CD rate, it will likely be stated as an APY or annual percentage yield. That's different from the CD's APR, or annual percentage rate. The APR is an annual rate. But, when interest rate (APR) is applied multiple times throughout the year (e.g. monthly) the actual interest earned on the account is higher than it would be if the interest was only applied once. The APY or CD rate reflects the higher amount of interest earned.

Video: How CDs work

FDIC Insurance on Certificates of Deposits

Unlike most other investment instruments, the Federal Deposit Insurance Corporation (FDIC) insures CDs up to $250,000. Traditionally, the FDIC insurance limit on CDs was $100,000. However, the limits have been temporarily raised because of the 2008 economic crisis. The increased insurance limit of $250,000 expires on December 31, 2009. You can verify whether your bank is insured at the FDIC website or by calling 1-877-ASKFDIC (1-877-275-3342).

Credit unions aren't insured by the FDIC. Instead, they are insured by the National Credit Union Administration (NCUA), which is also a federally-chartered organization. The NCUA insures your deposits at the same level as the FDIC does with banks and thrifts. You can check to see if your credit union is NCUA-insured by calling 1-800-755-1030 or visiting their website.

Video: Types of certificates of deposit

CD Investment Risks

You might wonder about a bank's financial strength before investing your money in its CD. Bauer Financial is a national bank rating service that provides up-to-date information on a bank's financial standing. You can check their website to find out how your bank's risk of failure.

You might face some risk with some high-yield CDs which typically require a high deposit. If you deposit anything over $250,000, you risk losing the extra amount if the bank goes under. If you choose a long-term investment on a high deposit, remember that FDIC insurance levels go down in 2010.

Tips for Investing in CDs

Be careful about investing in jumbo CDs. These are CDs with high deposit requirements. If the bank fails and you've invested more than the FDIC-insured amount, you could lose the additional investment.
Confirm the interest rate and how often you'll receive interest payment. The bank should give you disclosure statement that details your interest rate and the interest payment schedule. If you don't get this disclosure or you have questions about it, ask your customer service representative.
Understand the early withdrawal penalties. It's important to know how much you'll have to pay if you pull your money out sooner than you previously agreed.
Shop around for rates. Before you purchase a CD at your own bank, check with a few other banks to see if there are any better rates. You'll be sorry tomorrow if you see a better rate being advertised.
Don't rule out internet-only banks. These banks can offer higher interest rates because they don't have the overhead costs of traditional brick-and-mortar banks. Some people are skeptical because they can't associate a face or building with the banks, but you can always check the FDIC insurance on the bank before depositing your money.