Certificates of Deposit

Investors searching for relatively low-risk investments that can easily be converted into cash often turn to CDs. But with so many CDs to choose from, some with fancy features that spell greater risk, you should do your homework before you invest.

Tips for Investors

Before you consider purchasing a CD from your bank or brokerage firm, make sure you fully understand all of its terms. Carefully read the disclosure statements, including any fine print. And don't be dazzled by high yields. Ask questions—and demand answers—before you invest. These tips can help you assess what features make sense for you.


CDs Through a Broker

Although most investors have traditionally purchased CDs through local banks, many brokerage firms now offer CDs. These brokerage firms—known as "deposit brokers"—can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution. The deposit broker can then offer these "brokered CDs" to their customers. Since anyone can claim to be a deposit broker, you should always check whether your broker or the company he or she works for has a history of complaints or fraud.

CDs and the FDIC

The FDIC—short for the Federal Deposit Insurance Corporation—is an independent agency of the United States government. A key role it plays is to protect you against the loss of your deposits if an FDIC-insured bank or savings association fails.

What Does the FDIC Insure?

The FDIC insures deposit accounts such as checking, NOW and savings accounts, money market deposit accounts, and CDs. The basic insurance limit is $100,000 per depositor per insured bank.

Is Your Bank or Savings Association Insured by the FDIC?

Call toll-free (877) 275-3342 or use the FDIC Institution Directory.

Shop Around

The FDIC recommends that you check with at least three or four CD providers, including institutions you already deal with and trust. Find out about interest rates, minimum deposit requirements, maturity dates, and early withdrawal provisions. Remember that these features can vary widely from bank to bank.

U.S. Savings Bonds

Savings bonds are issued by the federal government and may be purchased for an investment as low as $25.