One of the issues that many have with CDs is the fact that the yields can be somewhat low. Indeed, with most cash products, the yield is relatively low. This is because cash is mostly safe, with your principal, up to $250,000 per account, guaranteed by the FDIC (assuming you have your account at an insured bank). CDs see a little higher yield than you will get on many savings accounts because you do not have access to the money as readily. You give up some liquidity in exchange for a slightly higher rate.
So, if you want to increase the CD yield that you get, what can you do? Here are three things that will help you boost your CD yield:
- Longer Term: A five-year CD generally offers a higher yield than its one-year counterpart. However, you are locking your money up for a longer period of time when you get a five-year CD. There are also seven-year and 10-year CDs that can provide you with better yields. Many people choose to set up a CD ladder in order to get more regular access to money in CDs, so that they can still get some benefits of a longer term, and retain some degree of liquidity.
- Larger Deposit: Up to a certain amount, you can actually get a higher yield with a larger deposit. Some banks will provide you with better yields if you are willing to commit to letting them use more of your money. However, you need to be careful: After a certain amount of money, the yield starts going down again, since the bank doesn’t want to make that kind of payout. You will have to balance your CDs so that there is enough to get a better yield, but not so much that you see declining rates.
- Alternative CD Products: You can also include alternative CD products in your search for a higher yield. This includes brokerage CDs, callable CDs, and other products that come with unconventional rules. Be careful, though: Some alternative CD products may not be FDIC insured, and you should read the fine print to ensure that you understand the rules associated with the products.