Money Talks, So Should You

Q&A: What should I know when shopping for a Certificate of Deposit (CD)?

Michael Timmermann
by Michael Timmermann, The Garrett Network

Certificates of Deposit or CDs are a safe way to earn a bit more interest than you would with a regular savings account — just make sure you’re not accidentally skimping on the safety.

That means making sure you’re purchasing your CD from an FDIC-insured bank (or a credit union that has similar insurance), so you’re protected in case the bank fails. The amount also matters: you’re covered up to $250,000 per depositor per institution. You can stash more money in CDs than that, but you’ll have to split it between banks.

READ: Understanding Certificates of Deposit

Longer-term CDs have better interest rates but be careful of choosing too long a term as CDs carry early withdrawal penalties. These can range from six months’ worth of interest, to only 60 days. If there’s a chance you may need your money earlier, go for the shorter penalty. A shorter interest penalty also makes it less painful to “break” your CD early if rates rise and you want to re-invest in a new CD with a higher rate.

Lastly, beware of CDs that offer rates far better than the competition. If it sounds too good to be true it likely is not a CD, lacks FDIC insurance or has another hidden risk.


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Michael Timmermann is principal of Timmermann Financial Planning, a fee-only financial planning firm in Torrance, CA. He received his B.A. and his certificate in Personal Financial Planning from UCLA. He has also passed the 10-hour CERTIFIED FINANCIAL PLANNERâ„¢ Exam.