Certificate of Deposits

July 16, 2006 at 1:21 pm · Filed under Finance

I read a lot of financial news, and I thought I should open a new category on my blog towards finance. This is an article I found in Fidelity about CDs and why they’re good right now.

In case you haven’t noticed, interest rates have been on the upswing in recent years—and that’s good news if you’re investing in certificates of deposit (CDs).

CDs are debt instruments offered by commercial banks, thrifts, and brokerages to raise funds for their business activities. Typically, investors lock in the market interest rate at the time of purchase, which is fixed for the term of the CD.

Many investors buy CDs directly from banks, but you might consider an alternative—so-called brokerage CDs. These are issued by banks but sold through brokerage firms.

Here are some current comparisons of what banks are offering:

	CD Maturity	Annual Rate	Percentage Yield
USBank	15 months	5.25%	Annual & Maturity
ING Direct	12 months	5.25%	Monthly or Maturity
Fidelity	6 months	5.25%	Maturity

More CDs are offered, but these were the specifics of an annual rate of 5.25%. I’ve seen some CDs as high as 5.6%, but the maturity is 5 years. USBank and ING are banks that issue their own CDs, while Fidelity is a brokerage firm that offers Bank’s CDs. That’s why you can find shorter term CDs, better rates, and varieties. So, check around.

It’s important to note that when you a buy a CD you lock in that rate for the given maturity period. If you close it early, you can be charged fees. ING can distribute the dividends in monthly increments, which is good. That money will be put back in your savings account with them. It currently earns 4.35 %.

So, if you have some money laying around, you may think about a fixed income such as CDs. I myself bought a 6 month CD from ING last October. I locked in a rate of 4.2 %. But with the Fed raising rates, you can easily get 5.25%. The Fed is rumored to raise rates again in August to 5.5%.

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