Certificate of Deposit (CD)
Obtaining the highest CD rates requires motivation. One will not get the best interest rates handed to them. Searching for rates on the internet seems to be the most efficient and effective way to ensure the highest return on investment. Since the yields change so often it makes sense to research often. Taking a look at how these numbers trend over time can give the consumer more power. Even just spending a few minutes right before opening a new account can net extra cash in your pocket. Banks can differ in their promotional offerings so shopping around can yield some nice perks such as free checking with direct deposit. This is actually somewhat common however one do some research to determine if a particular financial institution offers this type of free checking account. More banks are now offering data export services to integrate one’s banking data with personal finance software like Quickbooks. An online banking portal is pretty much standard fare now a days, but the depth of the services offered through that bank website are dependent on the institution. Some banks have online bill pay that allows the customer to pay credit card bills and household bills while others will extend this check by mail payment to anyone with a street address.
In the end, the customer eventually pays for the convenience of any banking account. Does free checking really mean “free”? Banks gain money by charging more for writing checks and offering lower interest rates to customers with accounts that pay a rate of interest by the bank. The fees charged by some banks can be downright unreasonable. Some banks charge fees for not maintaining a minimum balance thus inconveniencing the poorest of their customers. Banks can even reward their richer customers by paying out a higher rate of interest on a jumbo CD investment of over $100 thousand dollars. ATM fees can even make a dent in the wallet. One that frequents the ATM should survey the surrounding area for numerous machines. If one takes advantage of a competing bank ATM one might have to pay a fee of for the privilege. Acquiring overdraft protection is almost always a smart move because the overdraft fee is typically less than the fee charged to bounce the check plus the late payment cost of missing the payment. The overdraft protection allows the bank to pay a check even though the customer does not have sufficient funds available in the checking account. Credit card companies can charge a lot of dough for a single late payment. Credit card holders that receive late payment fees can call in and ask for forgiveness if the customer has a long history of making payments on time normally.
The power of inflation can easily destroy any interest gained from an interest bearing bank account. This periodic increase in the cost of goods and services can hurt the average consumer even at a lower levels of inflation. To make matters even more confusing, banks can opt different methods to calculate interest earned on an account. This is why almost all banks publish the annual percentage yield, or APY. The Annual Percentage Yield can be easily compared from bank to bank whereas APR, or annual percentage rate, can be calculated differently and therefore is not a good number to use to compare rates. Typically certificates of deposit tend to earn a higher rate of interest compared to online savings accounts and interest bearing checking accounts. The amount of time that the CD investment is locked in for is determined at the time the account is opened. Cashing in the CD early will likely incur some type of penalty from the investor’s bank. The minimum balance requirement can also be very different so those looking to invest in a certificate of deposit must pay attention to minimums in most cases.
How does one know how to find the best deal in banking? The customer should know himself or herself well first to be able to make smart decisions with money and banking. Some monthly facts to gather include:
- How much is spent on rent
- What is the cost of food/dining/entertainment
- How much is the monthly car payment and auto insurance
- What percentage of income will go toward savings
- How often does one need to visit the automated teller machine (ATM)
- How many checks are written per month
- Are bills paid online
- Should some money need to be put aside for other costs
The right bank will be the one that suits the individual’s needs the greatest. Some bank accounts will work out better for some people depending on these variables. It does not hurt to go in and visit a bank branch in person to get a free consultation however most of this information is readily available online. There is an exception to this though since brick and mortar banks also have the option to offer different rates in the bank branches from their online banking division partners. There is no standard here, the interest rates can be higher or lower and it really just depends on the bank that one is working with. Internet only banks must be delt with differently. For one to invest hard earned money in an unknown bank, the FDIC website should be checked to ensure that the bank actually has FDIC insurance. A malicious hacker can easily copy and paste in the FDIC logo in hopes to fool some unwitting victim with the promise of much higher than normal interest rates.