2 Year CD Rates
2 Year CDs are low risk investments that hold your money in an interest bearing account for 2 years from the date of the deposit. These 2 years investments have a higher rate of return than shorter options such a 6 month CD or a 12 month CD. Typically the longer the term the higher the rate of return because the bank holds your money for a longer period allowing it to be more flexible. CD Rates are simply the rate of interest a bank will pay you for your investment.
A 2 year CD is also known as a 24 Month CD for obvious reasons. These investments are insured by the FDIC up to $250,000 until 2013. A 2 Year CD is a great option for investors with excess cash who don’t mind tying up their monies for a longer period.
Understanding CDs
Certificates of deposit (CDs) give savers an option to earn higher interest rates from CDs than they can in ordinary savings accounts but normally require a minimum balance of at least $500. In return for the higher interest rates, depositors agree to leave their investment in the CD for a certain length of time, typically anywhere from 90 days to five years. If they need to withdraw the money, or some of the money, in a CD before the term ends, they normally must pay a penalty to do so. When a CD’s term ends, it normally renews automatically for the same amount of time but at a new, current rate. Banks send notices a few weeks in advance of maturity and allow depositors the option to let the CD roll over for another term, change terms or take the funds out. There are no penalties for taking the money out of a CD when the term ends.
Two-year CDs
Investments with 2 year CD rates normally pay slightly more interest than those with shorter terms but less than the longer term CDs. In return for earning more interest, deposits with 2 year CD rates will usually incur higher penalties if you withdraw funds before the end of two years.
Interest Earnings
Many banks offer to compound CDs, periodically deposit the interest back into the CDs, usually quarterly or monthly. This makes the CD’s effective rate, or annual percentage rate (APY), higher than the stated rate. Because you earn interest on the interest as well as on the original principal, you will have greater earnings when a CD compounds. However, if you need to use your earnings, you can ask the bank to send you a monthly check for the interest or deposit it to your savings or checking account and earn only on your original deposit.
Precautions
When you want to get the best 2 year CD rates, shop for the highest rates, but do not consider only rates. The terms are often as important as the rates. Check things like the amount you must pay for an early withdrawal, whether the CD compounds and how often it compounds.
Safety
Investors who want a safe place for their money often choose CDs because US government agencies insure that you will not lose your money when investing in US bank CDs. The Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 of those funds.
Investment Strategies
Today’s difficult economic situation causes many people to carefully consider their investment strategies and look for the best rates they can get for the length of time they are willing to have their money locked in a fixed-rate CD. If you believe the rates will remain low for about two more years, a two-year CD may be a smart investment vehicle for you. You will earn higher interest than the shorter term CDs pay, and the rates may be higher in two years, so you can take advantage of better rates at that time.