Federal Deposit
Insurance Corporation

Spring 2011 – Special Edition: Shop and Save…at the Bank

Bank CDs: Key Questions to Ask

For generations, consumers searching for a safe place for their money have turned to bank certificates of deposit (CDs) which traditionally offer a higher interest rate than savings accounts. But new types of CDs make it more crucial than ever to do your research and comparison shop.

Before you purchase a CD, start by asking key questions such as these:

• What is the interest rate, expressed as the Annual Percentage Yield or APY?
• Is the rate fixed or can it increase?
• Can I make additional deposits during the life of the CD?
• Can I make penalty-free withdrawals?
• Will the CD automatically renew at maturity if I don't withdraw the money? (If you don't want to renew, contact the bank as soon as possible.)

To get the deal that meets your needs, check with your bank and a few other financial institutions.

Some people also turn to non-bank agents and brokers to purchase CDs on their behalf. The FDIC is encouraging consumers to carefully review all the account documentation and to make sure they are dealing with an agent or broker they can trust. Deposits sold by third parties sometimes can be complex and may carry more risks than traditional CDs sold directly by banks, especially in terms of your ability to lock in an attractive interest rate or get your money back early.

There have also been examples of some non-bank companies advertising above-market rates on CDs that, according to FDIC attorney Richard M. Schwartz, were "schemes devised by finance companies and insurance agents eager to get consumers in the door" to eventually purchase a non-insured investment.

For more tips, see Shopping for a CD: Be Informed, Be Safe.

For additional guidance before using a third party to make a deposit, see Using an Agent or Broker to Place a Bank Deposit? Ask These Questions First.