Certificates of Deposit offer great rates for your savings, but some have a catch

Thursday, July 27, 2023

CDs offer great rates for your savings, but some have a catch

Bank certificates of deposit are paying as much as 4 and 5% now, but there are some catches you need to know about.

SAN FRANCISCO (KGO) -- Bank certificates of deposit are paying as much as 4 and 5% now, but there are some catches you need to know about.

Walnut Creek wealth advisor George Noceti helps people with their investments every day. Here he explains the traditional CD.

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Most folks don't know how much their accounts are earning them in interest. By shopping around, consumers can get better rates on their savings.

"They usually have a fixed rate and a fixed term. And if you leave your money there for 3 months, 6 months, 9 months, 12 months, up to up to 5 years, you're locked in and then at the end of that term you get your principal back and you get whatever the CD rate is at that time," he says -- but there is a catch. "If you take the CD out early, if you need the money earlier than what the term commitment is, there's a penalty."

It can cost you all the interest you earned and more. However Noceti says there is a "work around," but there is a catch with that, too.

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"If you want a CD where there's no penalty to take it out early, you're just going to get a lower rate," he said. "And then there's a bump-up CD, also just a term, but it's when you're in a raising interest rate environment. You can request the bank to 'bump it up' at the higher rate."

But again you are going to start with a lower interest rate than you would receive on a traditional CD. There are other options out there, too. The important thing to keep in mind is these are not your grandparents' CDs and you need to make sure you know the rules before putting your money down.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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