Investors who like to make the most of their life savings should know about CD rates, which vary depending on the bank and the term. Understanding such variations is the key to finding the ideal product. Those concerned about credit union CD rates should continue reading.
CD is short for Certificate of Deposit. This is a time deposit that is given by banks or credit unions to consumers. Average consumers and business owners can make use of CDs to deposit money and avail of fixed interest rate on their return. But the depositor should keep the money on the bank before the term ends. The term is the duration wherein the deposit can remain on the bank. The depositor should not withdraw the money before the term expires. Otherwise, they will incur penalty. This is a simple rule that any depositor should be aware of. The term for CDs ranges from 3 months to 5 years.
The rate depends on a few factors like the bank funding needs and the term. But one important factor that should not be taken for granted is the Fed Funds rate. The Federal Reserve Bank sets the rate that banks should use in charging each other for loans. A drop in the Fed Funds Rate causes a drop in bank rates. The decision of the Federal Reserve Bank depends on the economic conditions. The rate is expected to be high when the economy is good. Take note that the rates fell during the recession. The CD rate is affected by economic shifts.
Economic prognosis should guide consumers in choosing CD term. Many consumers take advantage of good economic conditions and choose a 5-year term. Doing so allows them to enjoy high rates within the CD term despite changes in economic conditions. A short term CD is ideal during tough times. When the economy improves, you can have a new CD. Other depositors also break CD investment into separate terms that are good for one year. This strategy is called CD laddering.
As earlier mentioned, the bank funding needs affect the CD rate. Banks have varied funding needs, and each bank has its own funding strategy. The funding strategies employed by a bank affect the CD rates. The rate determines the status of the bank somehow. There are banks that have enough funds already that they do not need incoming money from depositors. These banks may not lure investors with high CD rates. However, banks that offer higher than median rates are said to be more stable. It is a common practice to rely not solely on the rate offered by a bank when deciding where to invest your money.
Take note that the amount of money you want to invest may affect the rate. Many banks offer bigger rates for bigger deposits. American banks usually provide the best rates on so-called Jumbo CDs.
The term length was mentioned a few times in this article. It needs to be discussed because it partly determines what happens to your money. Investors should make wise decisions with their CD term. Keep in mind that your money will be locked in a CD within the term specified. The longer the term, the more beneficial it is for your money.
For more information about credit union cd rates visit our website http://www.creditunioncdrates.org.