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The interest rates that certificates of deposit pay are determined by several different factors, some of which you don't have control over. For example, banks consider the current interest environment when setting rates, and you can't change that environment. There are, however, factors that you can control. Here's what you can do to get the best CD interest rates available.
Invest the Maximum Amount You're Able To
First, put as much money as you're able to safely invest into a single CD. You don't want to put an emergency fund that you have into a checking account because a CD isn't as liquid and well-suited for covering an unexpected expense as a checking account is. However much you can afford to invest for a while, though, should be put into one CD.
Many banks and credit unions use a tiered system to determine their CDs' rates, and CDs with more in them frequently get a slightly higher interest rate. Your bank will likely have several different brackets in their system, and you'll get a better return if you can get into one of the higher brackets.
Select the Longest Duration You Can
Second, select the longest duration that's compatible with your investing goals. CDs can last anywhere from a few months to several years, and banks and credit unions often provide slightly higher rates to customers who invest for a longer time frame.
There might be limits to how long a time frame you want a CD to last, and you shouldn't exceed this for a slightly better interest rate if you have a time-limited goal. If you can afford to wait until your money is again available for use, though, getting a long-term CD can yield substantially more in interest over time.
Opt for a Variable Rate
All CDs can be categorized as either variable-rate CDs or fixed-rate CDs. The former has an interest rate that fluctuates as the market changes, while the latter has a set interest rate that doesn't change for the duration of the CD.
If you want to seize the most possible potential out of a CD, opt for a variable rate one. Even if this type of CD comes with a slightly lower interest rate to start with, it'll let you take advantage of any interest rate increases that the market sees. If interest rates in general increase, your CD's rates will follow suit and go up as well.
To learn more about CD rates, contact a financial institution.
Share3 February 2020
