What is a High-Yield CD and How Does it Work?

A high-yield CD can help you reach your financial goals, such as saving for a new house or car. However, if you’re looking to open a certificate of deposit, know that they aren’t all the same.

Certificates of deposit are great if you want to invest and grow your money. But, high-yield CDs offer rates higher than the usual. If you want to learn more about a High-Yield CD and how it works, keep reading.

What High-Yield CDs Are

They are a certificate of deposit that offers a higher interest rate than a regular CD. Once you open this CD, that rate is set for a specific amount of time, depending on the term you chose.

Additionally, the funds in a high-yield CD are federally insured up to the maximum the law allows — $250,000.

Common Features of a High-Yield CD

• They’re mainly available at online banks: They are usually found at online banks and credit unions because they can afford to offer higher rates. This is because they don’t pay the costs to maintain branches or branded ATMs.
• They have high interest rates: They generally offer rates that are well above 1% APY, as opposed to normal savings accounts, which are considerably lower.
• They require low opening deposits: Most high-yield CDs have minimum deposits that are below $5,000, and some don’t even have a minimum. However, Jumbo CDs usually require at least $100,000 and don’t offer that much better rates than high-yield CDs.

High-Yield CD vs. High-Yield Savings

Some financial institutions offer high-yield savings accounts, which generally offer lower rates than high-yield CDs. Similarly, regular savings accounts generally have lower yields than regular CD rates.

You aren’t allowed to make any withdrawals until the term expires. If you withdraw before the term ends, you will usually have to pay an early withdrawal fee.

You are allowed to withdraw around six times a month with a savings account. However, this limit can vary depending on how you withdraw. Although online transfers factor into this limit, ATM withdrawals don’t count. Because of this,

How CD Rates Fluctuate

The Federal Reserve and Federal Funds are the main factors that determine interest rates of high-yield CDs. The federal funds rate is the interest rate commercial banks charge other banks to borrow money from them.

These are some factors that affect high-yield CD rates:

• Current interest rates
• Amount of deposit
• Bank or credit union offerings
• Term length

During periods when federal funds rate is low, banks don’t benefit from offering customers a high-yield CD. Instead of using customers’ money at a rate that’s more costly, banks can just borrow from other banks or the government at a lower rate.

However, when consumers invest in a long-term CD, this gives banks more funds, which allows them to pay a higher interest rate.

Author’s Verdict

If you are looking to meet your financial goals or simply save money, I recommend investing in a high-yield CD. You can earn a rate that is much higher than the average savings account.

Make sure you research different banks and credit unions to find the best rate for you.

In addition, we have a list of bank promotions to get some extra cash in your pockets today. You may also want to check out savings accounts if you want to get started on saving up money.

Chase Coupon Codes 2024 ($100, $200, $300, $400, $500, $700, $2000 Checking Bonuses)

Huntington Bank Bonuses & Promotions: $100, $400, $1,000 Checking Offers 2024

HSBC Bank Promotions: $1,500, $2,500 Checking Bonus (Nationwide)

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