What to look for when shopping for CDs

By Sabrina Karl

You’ve heard it here before: To maximize what you can earn from CDs, shop around. But what are the most important factors to consider?

Traditionally, savers opened certificates of deposit at the local bank where they held their checking and savings accounts. But with the advent of the internet, plus the growth of credit unions, hundreds of options exist for CD savers no matter where you live, meaning the competition for your deposits has heated up.

Obviously, the primary factor you’ll want to consider is the rate. True, a higher rate means you’ll earn more. But the CD’s term is of course critical as well. Longer CDs pay a higher rate, but you’ll be locked in for longer. 

When rates are rising, as they have been for the last three years, shorter-term certificates can be appealing until rates stabilize. But this needs to be balanced with the knowledge that rates are never fully predictable. Though the Federal Reserve is forecasting more increases, nothing is reliable until it actually occurs.

Two other considerations can help you capitalize on potential rate increases. If you’ll be investing in a CD ladder, where you buy multiple certificates of varying terms, finding one institution that offers competitive rates across its whole array of CD terms can greatly simplify matters by allowing you to hold the whole ladder at one bank. 

Additionally, no CD comparison is complete without checking early withdrawal penalties. If you opt to cash out early, the penalty for doing so varies widely. So if you’re considering longer CDs, choosing one with the least onerous penalty is smart.

Shopping for your best CD isn’t especially complicated. What’s important is investing some time to evaluate the offerings and check the fine print, as it will almost always translate into more earnings in your pocket.