Discover Bank: 6 Factors That Could Influence CD Interest Rates

6 Factors That Could Influence CD Interest Rates: Opening a certificate of deposit account (CD) can be a low-risk method in saving for short and long-term goals, whether it be a new laptop in your near future, an updated wardrobe, yoga classes, or a child’s education that’s still several years out. Many enjoy that with a CD, your savings can grow at a fixed rate and may be insured. 6 Factors That Could Influence CD Interest Rates

CDs offer a low-risk opportunity. One reason a CD can be low-riskis if you open an account with an FDIC-insured bank or financial institution. If you do, the federal government will insure your funds up to the maximum allowed by law. In other words, even if the bank fails, you may get your money back. You can also open fixed-rate CDs, which offer a set interest rate for the entire term. 6 Factors That Could Influence CD Interest Rates

You may consider opening a certificate of deposit because CD interest rates are often higher than what a checking or savings account offers. However, certificate of deposit interest rates depend on a variety of factors. Understanding these can help you compare CDs, decide if and when you should open a CD and find a competitive interest rate. Review these six factors below that have an impact on CD interest rates, and you’ll be on your way:

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6 Factors That Could Influence CD Interest Rates

1. The CD’s Term
   • When you open a CD, you’ll need to have a term in mind whether it be 3 months, 6 months, 24 months, etc. The term is simply the length of time you agree to leave your initial deposit at the financial institution. Terms are often between several months and 10 years, and it’s important to choose carefully because you could pay a penalty if you withdraw your money before the account’s maturity date.
   • Generally, a CD’s interest rate rises as the term increases. However, that also means you won’t have access to the money for a longer period of time.
2. The Type of CD
   • It’s difficult to talk about certificate of deposit interest rates without considering the different types of CDs, including fixed-rate CDs, bump-up or adjustable-rate CDs and variable-rate CDs: 6 Factors That Could Influence CD Interest Rates
     • Fixed-rate CD: The CD interest rate will remain the same until the CD matures.
     • Bump-up or adjustable-rate CD: If you choose to open a bump-up CD, you may be able to adjust your CD’s interest rate before it matures. A CD with this feature could be a good choice if you think interest rates may rise in the future. However, you may only be able to request the change a limited number of times.
     • Variable-rate CD: With a variable-rate CD, you don’t get to decide if or when the interest rate changes. Instead, the certificate of deposit interest rate may increase or decrease based on the rise or fall of a benchmark interest rate.
   • The type of certificate of deposit not only impacts if, and when, the CD interest rate can change, but it also may influence your interest rate when you first open the account. Bump-up and variable-rate CDs, for example, could offer a higher interest rate down the road, but you may start with a lower rate than what you could get from a fixed-rate CD of the same term. 6 Factors That Could Influence CD Interest Rates
   • Some issuers also offer penalty-free CDs that let you withdraw your money before the maturity date without paying a penalty. In this scenario, the certificate of deposit interest rate may be lower than what you could get from a comparable CD that doesn’t offer this feature. 6 Factors That Could Influence CD Interest Rates
3. Current Benchmark Interest Rates
   • CD issuers may base their rates on other benchmark interest rates. The federal funds rate, for example, is the interest rate that depository institutions such as banks charge one another for borrowing money, and it’s a common benchmark for certificate of deposit interest rates. When the federal funds rate rises or falls, the interest rates on new CDs could rise or fall as well. Knowing how the federal funds rate can impact CD interest rates. Note: It’s not recommended to lock in long-term CDs if the benchmark interest rate is expected to increase. Instead, you can find an alternative such as opening a high-yield online savings account or a money market account for short-term goals. 6 Factors That Could Influence CD Interest Rates
4. The Amount Of Your Deposit
   • You may be able to lock in a higher certificate of deposit interest rate by depositing more money when you open a new CD. There may be a minimum deposit to get a higher CD interest rate, such as $100,000. Some issuers call CDs with these large minimum opening deposits “jumbo CDs.” However, even at lower levels a bank or other financial institution may offer you a higher CD interest rate depending on your deposit amount. 6 Factors That Could Influence CD Interest Rates
5. The Financial Institution
   • Banks and credit unions may also offer different CD interest rates depending on their internal measures and goals because a CD can be considered a liability on a financial institution’s balance sheet, some banks/credit unions kept their rates lower than other local banks and credit unions to slow the amount of deposits coming in. The opposite could also be true when the issuer is looking to attract new customers and bring in more deposits. 6 Factors That Could Influence CD Interest Rates
6. When You Deposit The Funds
   • After you open an account, you could have several weeks to fund your new CD. But if your deposit is received within 10 days of submitting your application, some banks, including Discover, will give you the highest CD interest rate offered on one of the following dates: the date you submit your application, the date your account is opened or the date your funding deposit is received. After that, the bank may give you the current interest rate on the date the deposit is received.

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Author’s Verdict

Knowing what influences certificate of deposit interest rates can help you make an informed decision when you’re shopping for a CD. Hopefully this post on the 6 Factors That Could Influence CD Interest Rates post helped you answer those questions! Let us know if it did in the comment section below or help add onto our list! Let us know about your thoughts and experience with Discover Bank Online in the comment section below! If you’re interested in more info regarding Discover Bank Online offers, check out our full listing of Discover Bank Online Bank Deals, Offers, Bonuses, and Promotions. Be sure to check back on BankDealGuy for more bank deals! How Do I Dispute A Transaction FAQs 

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