What is considered a good interest rate on a certificate of Deposit (CD)?

Answer:

When interest rates are very low, it is difficult to find one certificate of Deposit (CD), offering a significantly higher yield than other rims. There are several factors that affect the CD and CD income investors can take steps to maximize their return on investment.

What makes an attractive CD-ROM as an investment tool-it is not their yield, but risk-free. Depending on the financial institutions offering them, CDs are insured the Federal Deposit insurance Corporation (FDIC) or national credit unions administration (NCUA), and there are a few safe tools available for the average investor.

The minimum amount for a CD is generally $500 and the minimum time is 30 days, although most of the CD Matures anywhere from six months to five years. Larger deposits and longer terms earn higher interest rates. Interest rates available on CDs, as a rule, slightly higher than the current level of inflation determined by the consumer price index (CPI), so virtually any higher rate than this is a good thing. Online banks and credit unions often offer slightly higher interest rates than traditional brick-and-mortar firms.

Maximizing profitability

Carefully check the calculation of interest and payment schedule. Advantage, accrued interest, and is often compounded over time, so look for a disc that offers more than just annual compounding.

While CDs are traditionally fixed-rate investments, variable-rate CDs do exist. If you believe that interest rates will probably rise significantly, you can use the certificate interest rate which is adjusted during the validity period of the CD.

Indexed or structured CDs offer you the opportunity to earn a percentage yield of stock index or a commodity index. This can lead to much higher returns than traditional CDs, though at greater risk as well.

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