Mention “CD” to a certain generation, and you’ll likely get nostalgic looks and air guitars. In banking and finance, however, CDs play a different kind of music, one that guarantees a safe, reliable return, while helping you orchestrate a bright economic future.
A certificate of deposit, or bank CD, is a type of savings account with a fixed interest rate and fixed date of withdrawal, known as the maturity date. CDs usually qualify for deposit insurance coverage through the Federal Deposit Insurance Corporation, so it’s important to open a CD with a FDIC-insured financial institution. A wide selection of CDs with different maturities and yields allows investors to begin earning a return on their money in ways that meet their specific needs and budget.
Key advantages of CDs over traditional savings and money market accounts include higher interest rates – meaning greater returns for investors – and no monthly maintenance fees. Funds in a CD are not available for withdrawal until the maturity date which is determined by the CD term. Investors are subject to an early withdrawal penalty, if they choose to withdraw funds before the maturity date.
Two acronyms to know: APR, or annual percentage rate, and APY, annual percentage yield. APR is the annual rate of interest paid on an investment (often referred to as the “interest rate”); APY refers to the amount of money you earn on a deposit over a year, taking into account compounding interest, or the “interest on the interest.”
The best way to compare CD products is by comparing the APY, as this measures the return one will earn while considering compounding interest. By comparing APY, one can determine which CD will offer the highest return.
Consumers shopping for bank CDs should consider various online and other non-traditional banks for the most competitive rates. Live Oak Bank, with $3.4 billion in assets and an “A+” overall health grade by a trusted industry rating source, offers a wide variety of banking’s best FDIC-insured CD rates and terms.