These CDs offer higher yields than their noncallable brothers. But there's an important difference. They have call options. That means the issuer can redeem, or "call," your CD before it matures. These CDs carry a call date, perhaps six months after you buy them, when the bank can take back your CD and return your money with interest.
If your CD is called, you run the risk of getting lower rates on the next go-around.
"Callable CDs are a heads-I-win, tails-you-lose proposition for the bank," says McBride. "If rates fall, the CD will be called and you're stuck with lower yields. If rates go up, you're stuck with a very low-yielding CD."
For example, a six-month, callable CD with a 10-year maturity offered by the federally insured Savings Network in early December paid 3 percent interest. So your CD can't be called by the bank during that six-month window. After that, the CD can be "called," or redeemed, during the next nine and one-half years.
These days, callable CDs with a lengthy maturity date might be an option to consider because interest rates will likely rise over time, McBride says.
As a rule, it pays to go with noncallable CDs. Then you won't have to lose sleep over getting your money back at the worst time -- when rates are declining.