Locking In Yields

Tailor certificates of deposit for specific cash needs

Certificates of deposit may not be your or your father’s investment. More likely, they’re your grandfather’s choice. Looking past their stodgy reputation, CDs are easy to acquire (just walk into your local bank) and virtually risk-free, with the Federal Deposit Insurance Corp. (FDIC) covering accounts up to $100,000.

Low risk usually means low returns, and historically that has been the case with CDs. Today, though, new technology has turned up the heat in the CD business. “Internet-only banks, with their low overheads, often pay higher yields on CDs,” says David Hendelberg, a CPA and certified financial planner with the Atlanta-based accounting firm Jones and Kolb. “Some other banks have raised their own yields in order to compete, so it pays to shop around.” In late 1999, for example, while average CD yields were in the 4.5% to 5.5% range, you could have earned more than 6% on a six-month CD-more than 7% if you were willing to make a five-year commitment (see chart).

The Internet also helps you save shoe leather while you chase those high yields. “We update our survey every week,” says Greg McBride, a financial analyst at bankrate.com, a Website that posts the top CD yields for several different maturities. “All of the banks we list offer FDIC insurance, so investors can feel confident about placing their money with a distant bank.”

What’s the best way to capitalize on CD investments? “If you’re going to place a sizable amount of money in CDs, stagger the maturities,” recommends Hendelberg. “Put some into one-year certificates, some into two-year certificates. That way, you’ll have CDs maturing each year in case you need cash, [and you won't have to] pay an early withdrawal penalty, which can be substantial. If you don’t need the cash, you’ll have the opportunity to reinvest at the highest rates available then.”

If you stagger maturities, you can also use different banks for different CDs, locking in the highest possible rate for each maturity. However, it may be advantageous to do all of your business with one institution, says Ginita Wall, a San Diego-based CPA and financial planner. “Besides convenience, you may find it easier to get loans, qualify for fee reductions and receive better service if you’re a valued customer at one bank, especially a local bank,” she says.

On the other hand, says Wall, “If you have bank accounts over $100,000, you might want to spread your money among two or more banks because [$100,000 is] the upper limit for federal deposit insurance.”

Top-Yielding CDs

Institution Name/Headquarters

Yield

Phone Number/
Web Address

Minimum
Deposit

6-Month CD (National Average: 4.63%)
Bank Caroline, Travelers Rest, SC 6.30% 877-692-2765; www.bankcaroline.com

$ 500

TeleBank, Arlington, VA 6.28 800-835-3226; www.telebank.com

1,000

Net.B@nk, Alpharetta, GA 6.26 888-256-6932; www.netbank.com

1,000

M&T Bank, Buffalo, NY 6.26 800-528-6532; www.mandtbank.com

5,000

USABancShares.com, Philadelphia, PA 6.25
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