NewsReak Financial

A lot of people that bank with large banks, often wonder why their bank falls a bit short on the interest rates when it comes to smaller banks with a lot less cash flow. The answer is quite simple and logic weighs out here when you reason on things. Remember that banks are in business to make money, not to just offer you a service of keeping and giving you your money when you want it. Larger banks have a lot more overhead in many cases, and many more policies than smaller banks, but this isn’t why rates seem lower with your bank when you want to open a savings or a CD.

The fact of the matter is, banks are always looking for new members, and the best way to get them is through offering specials that attract people locally. This is especially true for smaller banks. They may not have as many people banking with them as they would like, so they put an ad in the paper for a special on a CD rate, or they advertise through other methods to get attention of a rate that is much better than the competition. This money is then invested for the bank to gain a higher return on interest and then redistributed back to the person investing at a small interest rate.

Larger banks B of A can afford to always have lower rates because they can borrow more from the government and because they have many more options for cash flow than smaller banks. What you will find with Chase bank CD rates or Bank of America CD rates is that they will usually always hover around the national average. This can sometimes be as much as 1% less than what you might find elsewhere.

So the next time you decide to throw a couple thousand dollars into a CD, why not look at some of the smaller banks locally, or check with bankrate.com as they update rates regularly on their site to provide the information you need on banks and their reliability as well.

Because of the Federal Deposit Insurance Commission (FDIC) protection on our bank savings accounts, many people view CDs as the safest option available right now even though interest rates are low.

CDs pay interest on your money in a way similar to your typical savings account, however, CDs can pay higher rates based on a APY (annual percentage yield) by locking in a particular APY over a specified period of time. The longer the period of time you “lock in,” the higher the interest rate will be.

“Locking in” means that you agree to keep your money in a particular CD at a particular bank at a particular rate by filling out a simple form and disclosure at that bank. If you should decide to take out your money before that specified time is up, you will usually pay a penalty for early withdrawal.

The bank uses invested monies to lend or reinvest. That is why they want you to “lock in,” because then your money is less likely to leave the bank until your specified “lock in” time is over.

The highest paid CD rates usually involve the longest “lock in” times. For instance, if you choose a 3 month CD you might earn 1.2% interest APY, however, choosing a 5 year CD might earn you 3.50% interest APY over the 5 year period.

When your CD “matures” (the date your CD term ends), your agreement with the bank ends for that particular rate you had agreed upon and the bank will stop paying the rate you agreed to and you can withdraw your money from the bank without a penalty.

When your CD matures you usually have a window of time of 10 to 15 days to decide whether you want to take your money out of the bank or reinvest it again with the bank. Many banks will automatically reinvest your matured CD into another new CD if you don’t give them alternate instructions. If you do not want your money rolled over, make sure you let the bank know ahead of time.