4 Options for Higher CD Interest Rates

by Jason on July 28, 2010

When it comes to earning interest from cash products, Certificate of Deposits or CDs, are often considered a good choice. However, most CD interest rates are not offering terribly high yields right now.

It’s just the nature of any cash product.

You exchange safety for the potential for higher yields. It is possible, though, to boost your CD interest rates.

There are some high yield CD options that can help you get a little more bang for your buck, let’s take a look at a few of them:

High Yield CDs

These are your basic CDs, but with higher yields.

These CDs are most often found at online banks, so you can head to the Internet to look for them. You can also try a local bank or credit union, since these institutions may be running special deals.

It is also possible to enjoy higher yields on CDs that you get for longer periods of time, or for higher amounts. A 5-year CD with $15,000 will earn a higher yield than a 3-year CD with $4,000. High yield CDs provide a little more in terms of return than you might find otherwise.

Callable CDs

These are interesting CDs that might offer you a higher CD interest rate, but at the cost of the bank being able to call the CD back within a certain period of time.

You are offered a higher rate, but the bank will have the option to take back the CD after a certain term.

Some banks will offer a very high rate on a 5-year CD, and guarantee it for six months, or even a year. But, after that initial call protection period is up, the institution can recall the CD.

You get your principal back, and any interest you have earned to that point, but your high yield goes away. Banks use callable CDs as a way to get you interested, and then take advantage of the market if interest rates drop.

They call in the CD, and then you have to get a new CD — one with a lower interest rate.

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Brokerage CDs

Brokers also sell CDs. They get large issue CDs from financial institutions, and then break them down into smaller pieces that can be sold to investors.

Financial planners and brokers can also help you shop around for higher CD interest rates. Brokerage CDs often come with higher yields than more traditional CDs.

However, you do have to be careful. In some cases, you might have to pay a fee as part of the transaction, or fees charged on assets under management may cut into your returns. You also have to check to make sure your CD is FDIC insured, since not all brokerage CDs are.

Another option related to brokerage CDs is the secondary market. It is possible to buy and sell CDs much as you would fixed income investments. However, you run the risk of losing money in these cases, and your CD is probably not insured.

Bump Up CDs

These interesting CDs offer the option of taking advantage of a higher interest rates later on. You have a fixed term for your CD rate, and if interest rates rise, you have the option of “bumping up” your CD rate to that higher rate when the current term ends.

Basically, you have the option of enjoying a higher CD rates on a new issue if you have a bump up. Since the bump up doesn’t take place until after the original CD’s term ends, you will need to choose quite carefully.

Bottom Line

There are CD products out there that offer higher interest rates. They still may not be the types of returns you can potentially get from stocks (or even bonds), but high yield CD options can help you get a little more for your cash.

Plus, with the right CD products, you can more effectively preserve your capital, and maybe even protect — at least a little bit — against inflation.

This has been a guest post by Nathan Richardson, Managing Editor and Founder of ComplexSearch, Nathan enjoys blogging and helping consumers save money.

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