Pros and Cons of Online CDs

Reviewed: February 19, 2014
By FinanceWeb

Once you have made the decision to invest some of your money in a certificate of deposit, you need to then consider whether you want to buy them from your local bank or go online with your money. There are advantages and disadvantages to buying online CDs, and you should be aware of them before you decide what you want to do.

Comparison-shopping is easy

One great advantage to online CDs is that you can compare rates from different banks easily, but it doesn’t stop with difference in interest rates. You can easily look at the different minimum requirements for a CD deposit as well as the annual percentage yield and whether the interest is compounded daily, monthly or quarterly. Reading the fine print to inform yourself of any fees and early withdrawal penalties, is a must. The ultimate beauty of it, is that you are no longer geographically limited to banks in your local area, but you now have a large array of options from banks across the nation. Some online banks may even offer very attractive rates compared to their brick and mortar counterparts since they have less expenses they need to worry about.

Convenience, convenience, convenience

You now only shop around from the comfort of your own home, you also get to complete your investment in front of your computer. Because everything is done online, a deposit for a CD can be done on a weekend or outside of any normal business hours. The service of taking a CD deposit is limited to normal business hours with a local financial institution, and these hours are reduced during holidays. An online CD can be obtained 24 hours a day seven days a week.

Website downtime is a disadvantage of online CDs

A major downside to online CDs could be when they suffer downtime for their website. Granted, with today’s sites having superior back-up and redundancy designs, there is less interruption than in the past, but it is still possible for a banking website to go down.

No face-to-face conversation

Perhaps the biggest issue with an online CD is with not be able to go to a bank and speak to someone in person to open your CD or if an issue may arise. Although customer service is offered by phone, there are many people who still feel more comfortable speaking to someone face to face. You can overcome this hurdle by choosing an online product offered by a bank with physical locations near you and still know you can just walk in if you ever need to. Also, many of these banks have good customer service centers and help would be available over the phone.

Online Security

Just as everything else done on the World Wide Web, safety and privacy of you personal information is a concern. Make sure you connect to a trustworthy institution over a secured connection and change you passwords frequently. More tips on safe internet banking experience are available at http://www.fdic.gov/bank/individual/online/safe.html
Regardless of which path you choose to take on where to deposit your money for a CD, you owe it to yourself to explore what is possible on the Internet. In recent years, we have seen tremendous growth in the financial market, and online banks are becoming very competitive for your investment dollars.