Protecting Interest Earned on Certificates of Deposits

Are the best CD rates variable or fixed, and what can be done to protect certificates of deposits from changes in rates?

Certificates of deposits are often considered some of the safest investments available. With rates offering higher returns than a savings account, and the best rates competitive with treasury bonds, they are also a good way to ensure a return. But when Cd rates change, it is possible to lose these returns. This is why it is important to be smart about choosing the best CD rates and terms if you choose to invest in them.

How Certificates of Deposits Set Interest

Traditionally, CD rates were always fixed. Today, some of the best CD rates are variable. A fixed interest CD is exactly what it sounds like. The rates do not change until the maturity date, after which it stops earning interest and the investor can withdraw their money without facing penalties. When it comes to variable rates, the situation is somewhat more complicated. A variable rate on certificates of deposits changes, but you will have to do your research to determine exactly how. In some cases, the interest rate may be tied to the value of treasury bonds, or to a financial indicator like the Dow Jones. In other cases, the interest rate changes on a set schedule.

Are the Best CD rates Fixed or Variable?

The answer to this question depends on the situation. One or the other might have the best rate in the beginning, but since variable interest changes, by definition, the situation can reverse itself. Under circumstances where the variable rate is based on economic indicators, a variable rate is good if the economy is expected to improve, and bad if the economy is expected to take a downturn.

Certificates of deposits with a fixed rate might be though of as the opposite. Since the interest rate is "locked in," there will be no loss of interest if the economy gets worse. On the other hand, the interest rate will not improve if the economy improves.

Stacey Nelson

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.