Certificate of Deposit
When opening a CD it is extremely important that one understands the difference between variable interest rates and fixed interest rates. The interest earned based upon the CD interest rate can vary because the power of compounding interest makes the profit from daily, weekly, monthly, quarterly, or yearly compounding different. The more money that is invested, the more that this interest rate makes a difference. If rates fall while one is already invested in a certificate of deposit then this is a win since one is earning a higher rate than others that are opening new certificates (CD). If CD interest rates go the opposite way then it can be looked upon as an opportunity to purchase an additional CD at this higher rate. There are usually policies in place that allow one to end a CD term prematurely however there is almost always a penalty involved. Some banks do offer promotions and special Certificates of Deposit (CD Rates) without any penalties but this is somewhat rare. A Jumbo CD, which is a bank deposit certificate of at least $100,000, usually earns higher rates than normal non jumbo CDs. Just like the stock market, it makes sense to difersify one’s investments in different banks since FDIC insurance is currently at $250,000 maximum coverage per depositor per bank. FDIC insurance will drop back to 100,000 of coverage in 2013.
When obtaining any interest yielding bank account one should be concerned that all banks constantly review and change interest rates. Because of this active involvement, interest rates change often and can go up and down whenever the banks decide. The initial rate that one signs up for can only be valid for a short period of time depending on the type of account that is acquired. Banks that have great online portals will offer a plethora of banking services to meet the demands of the most particular consumer. Some services offered can include payment of creditors via check by mail (this is common with US Bank accounts), credit card accounts, stock and brokerage accounts, and stock trade accounts. If one needs the services of a human teller as opposed to an Automated Teller Machine, or ATM, then there is definitely a possibility that the user will be charged. Many banks now have built in stipulations that limit the use of normal bank tellers to compensate for high cost of labor. Going over this limit will usually incur a fee. The bank also may offer low fee or no fee checking accounts that are limited to 10 or less transactions per month. These transactions can be withdrawals, writing a check, making a purchase with a debit card, and even ATM withdrawals. Checking the number of transactions that one may be limited to in a single month is a smart move. Check out several local banks to compare the difference between online banks and traditional banks. Some banks even offer discounts to owners of their stock. This can be a money saving opportunity for the right investor.
Internet banks, banks without any retail bank branch locations such as ING Direct, usually do not own any ATMs so one may have to repay surcharges for cash withdrawals. Be aware that not all banks do this. ETrade for example will pay the customer’s ATM fees for maintaining a minimum balance in their online checking account. This type of ATM transaction involves two parties: the withdrawer’s bank and the ATM owner. Both banks preserve the right to charge fees so one may encounter a double whammy if not prepared to pay the fees. There is no need to bank with small internet banks that are do not carry FDIC insurance. Any doubt of coverage can be confirmed at the FDIC website. Money in a bank is safe when the bank has federal insurance for the funds of it’s customers. Making money off of interest is smarter than stashing the cash away under a mattress.