Understanding CD Interest Rates: The Key Facts You Should Know

People who want simple, reliable investment tools enjoy the security and rewards offered by certificates of deposit (CDs). When you invest in a CD, the funds sit in the account and accrue interest for a fixed period of time until the account’s maturation date. Because you agree to leave your money in the account for a certain amount of time, banks offer higher interest rates than they do with other types of investments. If you’re interested in the guaranteed benefits you’ll receive with a CD, make sure you’re aware of these five key facts about CD interest rates.

1. Get Better Rates with Large Deposits

When you go to open a new CD, you’ll typically earn a better interest rate if you have a large initial deposit prepared. Banks generally group CDs by deposit amount and overall balance, so it’s important to ensure that your savings makes you eligible for a tier of favorable interest rates. If you’re not ready to invest enough money, consider opening a temporary savings account or money market fund while you build your deposit. You can also look for CD offers that give higher interest rates to customers with small accounts.

2. Always Compare Rates from Several Banks

Before you open a CD, be sure to compare rates from multiple banks. Some banks offer higher interest rates to customers who invest at regular intervals, while others prefer to give incentives solely to first-time customers. Because CD rates are determined by so many factors, the lowest offer you find advertised might not be the most affordable option available. Use an online CD comparison tool to compare rates between banks with similar offers.

3. Choose Long Investment Terms for Higher Interest Rates

CD rates are largely determined by the length of your investment term. When you choose an investment term, it’s important to make sure you can commit to leaving your money in the bank for the entire period of time. Most investment terms last from three months to five years, and interest rates generally go up…

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