Before you buy a certificate of deposit, you’ll want to do a CD rate comparison to make sure you’re getting the most out of your investing dollar. Here are three things you should consider.
The best CD rate comparison is one that takes into account the entire market. Because any Federal Deposit Insurance Corporation institution can offer a certificate of deposit, investors need to crunch a lot of data. Thankfully, they can use this widget by Bankrate to get the lowdown on prices.
Use a ladder
While doing a thorough CD rate comparison will give you the highest yield, it won’t shield you against changes in interest rates after you buy. To make sure that interest rate ups and downs don’t leave you stuck in a low-yield CD, you should consider laddering your certificates of deposit. The idea is to stagger your investments across multiple CDs, each with a different maturity rate. As the shorter-term CDs mature, you can roll them over to the now “vacant” long-term rungs on your ladder.
While you may have done your due diligence in terms of CD rate comparison shopping, investors need to understand that CDs aren’t entirely without risk. Inflation can eat away at a product’s relatively modest earnings. And if that happens, the principal will remain, but because prices have gone up dramatically over time, the CD might be worth less in terms of real dollars than it was when it was first bought. To combat this possibility, investors should hold a diversified portfolio that includes a broad range of financial products designed to weather — and even grow in — any economic conditions.