If you're scouting around to buy a certificate of deposit, the Internet is a smart place to start. With a few clicks, you may be able to obtain CD rates that exceed anything offered by your neighborhood branch.
Remember, CDs are short-term instruments that tend to pay higher interest rates than regular savings accounts. A certain sum goes into an account for a fixed period of time, ranging from six months to five years or more. The interest is doled out in agreed-to intervals--say, monthly or at maturity. At maturity, you get back your initial deposit plus accrued interest.
That initial deposit can be done online. But you have to be comfortable with releasing bank account info over the Net. Says Caroline Jervey, assistant vice-president at BauerFinancial Inc. in Coral Gables, Fla.: "There seems to be no problem with offering up credit-card accounts online, but when it comes to giving up their bank account number, people shy away." If you prefer the more traditional approach, you can always print an application and mail it in with a check. "You just have to feel comfortable navigating each bank's home page so that you read all the fine print," says Jervey.
No matter how you pay for the CD, Web surfing can be an efficient way to compare rates offered by thousands of financial institutions--from a global giant like Citibank to the Richfield Bank & Trust in Minneapolis.
Tips to keep in mind: Comparison shop. Many Web sites survey CD yields nationwide and provide a handy one-stop shopping source (table). That's important because rates can vary by as much as two percentage points. Consider Bankrate.com's feature, "The 100-Highest Yields," which surveys 158 markets and updates the data weekly. Says Bankrate.com analyst Greg McBride: "It doesn't matter what part of the country you're in anymore." The site allows users to screen for minimum deposits, too. BauerFinancial.com ranks the best short-term rates, as well as long-term CDs of up to 10 years.
Research the issuer. It's rare, but banks can go belly-up. BauerFinancial.com has ranked banks since 1988 and rates 10,000 institutions on its Web site, including online banks. It recommends avoiding banks it has assigned fewer than three stars. Bankrate.com also offers a "safe-and-sound" star rating, ranking banks on capitalization, asset quality, earnings, and liquidity. The reports can be downloaded. Confirm that the bank is insured by the Federal Deposit Insurance Co. at www.FDIC.gov.
Lock in interest-rate and maturity dates. Whether you buy a CD online or at your local branch, always confirm the published yield. With online purchases, it's even more critical because electronic postings are not always up-to-date, warns Jervey. She advises getting written confirmations on rates by printing out all online applications and other paperwork. Not all banks allow investors to open an account online and fund it electronically--which means lag time. Find out the date the rate expires, and make sure that by the time you send in your check, the rates will still be valid, says Moriah Campbell-Holt of Gomez.com, which rates companies that provide online services.
Check out Internet-only banks. These banks pay higher yields because they've done a good job controlling costs, says Campbell-Holt. Some, such as ING Direct and Lighthouse Bank, allow direct transfers from and into traditional banks. Without the direct link, be prepared to have to wait for your funds to arrive via snail mail.
By Mara Der Hovanesian
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