You’ve outlined your investment budget. You’ve completed your research and found the best CD rates for your investment amount. You know how long you can hold your money in a CD deposit account. You’re ready to sign on the dotted line. Maybe. But have you read and thoroughly understand all of the wording or are you taking things at face value?
Common Words and Phrases
As with all contracts, Certificates of Deposit or CD agreements have restrictions, liberties, and conditions. In the excitement of finding the best CD rates, sometimes investors skim a contractual agreement and sign, simply hoping to get the investment ball rolling. Unfortunately, misunderstandings often sour the experience for the novice and veteran investor, alike.The investment world is a dynamic one – it doesn’t stay the same but changes often. Those changes affect how you might invest your hard-earned money. Ensure you stay current on those changes and how they affect your CDs.
Some common phrases found in CD account agreements and other investment tools:
Maturity: Ensure you know the exact date the CD will mature. If that date is not specifically noted, as in “one year from deposit date” or “36 months from account initiation”, have it in writing prior to signing. If the maturity date is initially noted as a blank line, have the representative complete that line with an exact calendar date before you sign.The maturity date is when the CD amount and you are paid the original deposit amount and accrued interest – what you determined to be the best CD rates you could find.
Roll-over: Once a CD matures, you have two options. You can take your money and either keep it or invest it elsewhere or you can reinvest it in another CD with that institution. Most banks invoke a roll-over that automatically reinvests your new total amount into another CD with them unless you take the steps required, in order, in time, and at the appropriate time to “claim” your pay-out amount.Automatic roll-over isn’t a bad thing if you don’t mind having your money locked up again.
But ensure you understand precisely what to do, when to do it, and in what order you must do it to avoid the CD from rolling over into a new one, should you need your money at the maturity date.
FDIC-Insured: As with most deposit accounts, CD accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. However, please remember that there are a few restrictions.
First, a depositor can have more than one account with a bank–a regular savings account and a CD account, for example. The qualifying accounts in the same bank, even if in different branches, are insured together for no more than $250,000; if you have one account has a balance of $185,000, and the other has $175,000, only $250,000 is insured – not the entire $355,000 you have in that bank.
However, if the qualifying accounts are in separate banks, each account at or under the maximum insured amount is fully insured up to the $250,000 maximum coverage amount.
Variable Rate: If your CD allows for differing interest rates, know at what “layer” or dollar amount interest rates change, any applicable time period or conditions under which the rate can change, and whether you have influence on allowing or disallowing it.
For instance, “callable CDs” allow the issuing institution to terminate your CD after a set amount of time but prior to the maturity date, but they do not grant you the same right. If the bank maintains “call” rights, know the minimum time involved, at what rate the bank will pay interest at that time, and when interest accrues and will be paid. A “call date” and “maturity date” are not the same things.
CD Broker v CD Issuer: CDs can be sold by brokers, but brokers do not issue – financially back – the Certificates of Deposit. Know who actually issues and guarantees the CD. Know how the selling broker is paid – is it deducted from your deposit amount, thereby reducing your invested total or do you pay a fee on top of the CD amount? Does the issuing bank pay the broker independently – not from your funds?
Death Benefits: Many CDs allow payment to a spouse or a designated heir. Know who can benefit from your wise investment in case of your death and under what conditions and stipulations the beneficiary claims rights.
Before signing a deposit agreement guaranteeing you the best CD rates available, know and understand every single word and each consequence of the agreement. Get additional information or stipulations or data in writing prior to agreeing to invest. Enable peace of mind and complete satisfaction in your investment choices.
Jess Hall writes out of Jersey City about different investment opportunities, including what to look for to get the best CD rates. Always looking for a trusted financial institution for advice and tips she tends to look up information at https://www.aurorabankfsb.com/ more often than not.