When investing into CDs, the most important factor that many investors often consider is the interest rate. While interest rates regularly change, it is important to understand where and how to find the best rates for your personal portfolio. Shopping around, using the benefit of time and working with relationships can help investors to take advantage of the best CD rates.
Shop Around for Interest Rates
The best place to start when working to locate the best CD rates is to determine what the current CD rates are. You can begin your CD rates search in the local paper, under the financial section. You can also visit many of the online investment websites, bank websites or general information websites for the average CD rates. Typically these resources will list the 1 year CD rates, the 3 year CD rates and the 5 year CD rates even though there are more available options to consider.
Once you have established a baseline, it is best to shop CD rates among several institutions. Banks are the best place to start and if you have an established banking relationship, begin your search there. In addition to finding out what the CD rates are at multiple banking institutions, you may also decide to search several of the more prominent brokerage houses. In addition to banks and brokerage houses, investors can also search online. With the expansion of the Internet as a search tool, there are a variety of additional banking and financial institutions that offer CD rates that are often times more competitive than what an investor can find locally.
Use the Benefit of Time
CD rates will most generally be higher for those with longer maturity dates. The primary reason for this is that the risk to the investor is higher than for shorter term CDs, and the investor is promising to leave their investment money with the financial institution for a longer period of time. The higher interest rate is a reward for taking both of these risks. If it is possible for an investor to take advantage of the higher long term interest rates, and/or to develop a CD laddering strategy, this is advised as it will increase the overall yield of the investment portfolio.
Leverage Financial Relationships
Another major factor to take into consideration when shopping for the best CD rates, is to leverage the power of relationships. If there is a pre-existing financial relationship, it is not uncommon for that relationship to offer a bonus rate for additional investment money flowing into their establishment. The reason for this is that many businesses are looking to add on products and services for existing customers, so they offer s bonus rate for the addition of a CD investment. So, next time you are looking for the best CD rates available, start by speaking with your local banking institution; you never know, you may just gain an extra portion of a percentage point or even an entire percentage point by taking this step.