Five Must-Knows About CDs

What Different Kinds of CDs Are There?

CDs are not one-size-fits-all.

(ABCNEWS.com)

The terms and conditions of the CDs are as varied as the institutions that offer them -- as are the minimum deposit requirements.

My recommendation is to focus on the following:

When does the CD mature?

Is the CD callable -- meaning the bank has the right to close out the CD before it is due and the penalties for early withdrawal?

What are the penalties for early withdrawal?

If you purchase your CD from a broker and not a bank or thrift, where will your money be deposited? Remember, your money is only insured if it is deposited at an FDIC institution.

Finally, for individuals who have a CD at Washington Mutual or Wachovia, you want to pay close attention to make sure the acquiring bank -- JPMorgan Chase, Citi or Wells Fargo -- sticks to the original terms of your investment.

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Some brokerages advertise CDs that allow you to take out your money before the CD matures. The way it works is if the broker is able to resell the CD to another customer, you are able to redeem your investment. However, this is dependent on the direction of interest rates. If rates are going down, the broker may have luck selling your CD to someone, but if rates are higher than what your CD offers, they are not going to find a willing buyer.

How Do I Find Best Rate?

You absolutely should shop around for CDs at both traditional banks as well as Web-based institutions.

My favorite search tool is through bankrate.com. You can search rates from institutions across the country.

My advice: Stick to a bank or savings or loan, which is one of the 8,500 insured by the FDIC. If you are averse to buying a CD on the Web, let your fingers do the walking and call the banks in your area to find out who has the best deal.

Do not be afraid to negotiate and ask a bank to match the rate you find at another institution.

When Should I Be Weary of a CD Deal That Sounds Too Good?

Unfortunately, juiced returns on a CD are sometimes indicative of trouble brewing beneath the surface of the financial institution.