Although reliability and low risk are the major benefits of investing in CDs (certificates of deposit), there are specific ways to optimize your earnings for the greatest return on investment. CDs ask for a mutual commitment from the investor, who agrees not to access their money for a specified period of time, and the bank, who agrees to guarantee a dividend upon maturation. The terms of this commitment can vary by bank and affect the appeal, flexibility and earnings of the CD.
Online, cashless banks offer rates that are considerably better than traditional banks. With no brick-and-mortar costs and no need for widespread physical locations, alternative financial institutions can keep their operating costs low and generally offer better rates.
As an example, at the time this blog was posted, a one-year CD at Crestmark Bank—an alternative, federally insured financial services provider—would require a minimum $25,000 deposit and would pay 1.7% when the CD matures. The guaranteed return on investment would be $425, which is earned simply by waiting the obligatory year. No further action is required.
By comparison, big-name banks frequently offer considerably lower rates and earning potential. At the time this was written, online sources show that a one-year CD would pay .15% at Citibank (equating to $37.50 for a $25,000 deposit), and .05% at Bank of America and Wells Fargo ($12.50 for 25,000). The $425 earning from Crestmark is notable when compared to a return of just $40 or less from the bigger players. Traditional banks may better serve other markets.
Plan your time wisely
If you are certain you won’t need access to your money for a while, it is in your best interest to choose the longest-possible term for your CD. If the bank has a longer time period to invest this money, it is more likely to guarantee a larger return. For example, at Crestmark Bank, a $25,000 CD invested today will earn 1.7% after one year; but it would earn 2.15% after five years. Growth increases with the term of investment.
Penalties for early withdrawal can be costly, causing you to forfeit interest. Before agreeing to the terms of your CD, consider your short-term goals, cash-flow needs and the immediate demands of your business, economy and industry.
CDs are stable investments, but some banks offer flexibility in their products. Indexed CDs depend on market index performance, which opens them to variability and may not guarantee return of principal in the event of early withdrawal. Callable CDs guarantee your initial principal, but the issuing bank reserves the right to end its obligation before the CD fully matures. Bump-up CDs allow you to reconsider the CD terms one time if the APY rate increases significantly. If early withdrawal fees aren’t cost-prohibitive, a bump-up CD might allow you to benefit from a renegotiated CD with an improved rate. These non-traditional options may be explored, but are not offered by all institutions.
Insist on FDIC-insured banks
Although some banks may offer high yields, be sure to check that they are fully insured and protected by the FDIC (Federal Deposit Insurance Corporation). See more here.
Consider investing with Crestmark Bank.
At Crestmark, we offer CDs at the most competitive rates in the industry, with terms from 30 days to five years, and with initial investment amounts ranging from $25,000 to $250,000. We are FDIC-insured at the maximum levels allowed by law, so you can feel confident your money is always safe and multiplying. We offer a safe, predictable, easy way to grow your money with little effort and no worry.
To get started, you can speak directly with our CD Administration team who can be reached at (855) 267-6445 or by email at firstname.lastname@example.org. Or fill out our online application!