How To Find The Best CD Rates

Reviewed: March 14, 2016
By FinanceWeb

 With the Federal Reserve program of rate increases well underway, savers and investors will search for higher returns on savings. Searching cd rates is an excellent first step towards maximizing return on savings and improving a portfolio.

Strong Cash Position

Many investors seek to maintain a strong cash position as the Federal Reserve raises rates in a slow and methodical way. They wish to be prepared to take advantage of market conditions, whether rising or falling, by quickly moving on opportunities. CD rates are particularly important to investors who compare opportunity costs; they compare CDs to earnings in other securities such as stocks, mutual funds, and bonds. Many investors seek to avoid long-term investments that can restrict their ability to move on opportunities that may occur.

CD Rates and Length of Investment

Higher CD rates can increase cash positions and provide a greater reward for maintaining a cash position than savings. Short-term CDs preserve financial flexibility and provide better returns than savings rates. Longer term notes may entangle cash reserves and must justify themselves on the basis of the agreed return. Searching for higher returns may provide better results if focused on the geographic areas and business lines in which banks currently need to raise additional funds.

CD Rates Vary by Bank

There are no standard rates for certificates of deposit, and each bank sets terms to attract depositors. The best rates will not announce themselves, and savers may have to search through a large number of offers to find the best terms and conditions for their needs. Depending on the length of the term, banks may be more or less aggressive in attracting depositors. While the higher rates go with the longer terms, the rates will vary significantly among banks for one, three, and five-year notes. The related terms can also be important. The penalties for early withdrawal are particularly relevant to most savers.

Searching for Clues

When one simply queries for higher CD rates, a pattern emerges of the identities of the top offerers. There will be concentrations of online banks, small banks, and regional banks. One may find further factors such as banks that engage more heavily in specialties such as real estate, construction, or international commerce. Another clue may be geography, regional and small banks located in particular areas may compete for depositors. This is relevant to areas that heat-up due to local development or local economic situations.

Online Banks Offer More

Online banks have established a niche as no-frills providers of banking services that pass on their low-cost structure to depositors in the form of higher savings and cd rates. When searching for the best CD rates, one should make a particular effort to survey online banks in several parts of the US.

Thrift institutions Offer Alternatives

Credit unions are excellent places to shop for certificates of deposit. Thrift institutions serve a membership-based pool of consumers which is likely to be more active than that of a typical US bank. Credit unions may need to grow in order to serve a growing membership base. Some credit unions require membership statuses such as former military or present or past employment with a certain company.

Rates Rise with Amount of Deposit

If one is determined to get the most from a bank, or thrift CD rates, then one may have to raise the amount of deposit to the higher tiers. $100,0000 deposit minimums would likely get many times the return of a $1,000 note. As always, the CD terms should be consistent with the saver’s objectives. Those who wish to maintain a ready cash position would probably not find the best rates.