CDs can be an attractive place to park some cash -- when interest rates aren't making a mockery of savers' attempts to beat inflation.
Be that as it may, CDs do offer convenience and an easy return on your money, plus your investment is backed up by the FDIC.
Before investing in a CD, buyers should ask themselves: When do I need this money? How long do I want to tie my money up at this interest rate? What is the early withdrawal penalty?
Consider the current interest rate environment and what may happen in the future. If a hike seems imminent, going further out on the yield curve may not make a lot of sense.
For instance, yields are not dramatically higher at five-year maturities than three-years in the current market.
According to the Bankrate.com Interest Rate Roundup, buying a five-year CD today will bring in an average yield of 2.12 percent.
Bankrate research puts the average yield on a three-year CD at 1.5 percent.
If you choose to buy a longer-term CD, will the increased yield make up for the fee paid if you bail early to buy a higher-yielding CD? A recent Bankrate survey on early withdrawal penalties found that many institutions will draw from your principal if the interest accrued won't cover the fee.
What else do you want to know before you buy a CD?