Questions to Ask About a Checking Account Choosing a CD Wisely

Questions to Ask Before Purchasing a CD

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1. What is the interest rate and how is it calculated? Banking institutions are required to express the interest earned on a CD as its Annual Percentage Yield (APY) to help consumers comparison shop. Make sure you understand the amount you must invest to get the quoted APY. If the CD has terms, such "bump-up" provisions that enable you to switch to a higher rate or "step-up" features that can automatically increase the rate, be sure to know how the interest rate can change and any fees that may be added.

2. When does the CD mature? What is the early withdrawal penalty? Many people focus so much on the interest rate they fail to think about how long their money must be invested. If they need access to their funds before the maturity date, with most CDs they face a penalty for early withdrawal. Be sure to ask how much the institution will charge.

3. Will the CD automatically renew at maturity if I don't withdraw the money? If so, how will that be handled? Banks often will automatically renew a maturing CD if the depositor doesn't withdraw the money or set up a new account within a week or so after the CD matures. If that's the case, find out if the automatic renewals will be at the "old" interest rate or some current rate. If market rates have increased, it is not to your benefit to renew at the old rate.