When you're considering a certificate of deposit (CD), there are a number of options, and it's important to shop around to find the right fit for your financial needs.
Fortunately, the Internet has made it very easy to conduct a CD comparison. Online, you can quickly find a variety of banks offering CDs and check out their websites to compare their offerings.
Your CD comparison can begin with a look at what you will earn with various offerings. After all, knowing just what and when you will be paid is one of the key advantages of having a CD. "Assuming you are comparing CDs with similar terms that are also FDIC-insured, the interest rate is the most visible [differentiator]," said Andy Tilp in a recent interview with Ally Bank. Tilp is president of Trillium Valley Financial Planning in Sherwood, Oregon, and he also noted that, "Bankrate.com is a great site to compare CD rates." Bankrate.com and similar sites aggregate rate information from a number of banks.
When comparing CDs, it's also important to look at how often interest is compounded. That might be daily, monthly, quarterly or even on an annual basis — but the more frequently it is compounded, the more you earn by maturity.
Interest rates certainly are a vital point in a CD comparison. However, "if somebody offers you a CD rate that is a lot higher than anybody else, be very careful," said Jim Heitman, of Compass Financial Planning in Alta Loma, California, in an interview with Ally Bank.
Currently, Heitman explained, a half-percent to a one-percent difference in rates is not unusual. But if there is a several-percentage point difference, you should find out why. A drastically high rate could be only a temporary enticement or, in rare instances, it might be for a product that is not insured by the Federal Deposit Insurance Corporation (FDIC).
A comprehensive CD comparison also should consider factors beyond interest and yield. Information about rates and features can be found in disclosure statements that you get from the bank, which can help with a CD comparison, but the smart CD shopper will come prepared with a list of questions.
- What is the minimum opening deposit you need to put into the CD? Some banks have such a requirement. At Ally Bank, you can open and fund a CD with any amount.
- Ask what the penalties are for withdrawing money before the CD matures. These can vary from bank to bank.
- Check to see if the CD automatically will be renewed at the end of the term — and if so, ask if it will be renewed at the original interest rate or at the new prevailing rate.
- Make sure you understand the full variety of CDs that might be available to you. For example, in addition to the traditional fixed-rate, fixed-term CD, there are "no-penalty CDs" that allow you to withdraw money before the CD's maturity date. "Bump up" (or "raise your rate") CDs let you earn more if the Bank's interest rates rise. And of course, CDs come with different terms or time periods.
In short, when you're doing a CD comparison, make sure you're making an apples-to-apples comparison of similar CDs.
With Ally Bank CDs, you'll get a rate that consistently is among the most competitive in the country — regardless of which CD account you open based on rates published at Bankrate.com. In fact, we'll even show you our competitors' rates alongside ours for a quick and easy CD comparison. Explore your options at Allybank.com or call 24/7 live customer care at 877-247-ALLY (2559) today.