If you want a safe place to store your money and earn a little interest, you’ve probably been shopping bank CD rates lately. Do you want to know more about how bank CD rates are determined, and what to do to get the best bank CD rates? If so, then read on!

Two Main Factors

There are two main factors that affect bank CD rates available to you. They are:

* The length of time until the CD matures, and
* The current interest rate environment

The longer you’ll have your money tied up, the higher your rate will be. Check around, you’ll find that bank CD rates go up as the length of time increases. This is because the longer you commit to leaving your money, the more flexibility the bank has with your money. They are willing to pay you a better rate because they can use the money for a wider variety of purposes. Of course, there are surprising exceptions to this rule in uncertain times.

Current interest rates are also an important factor. That is because bank CD rates are set according to other competitive rates out there. The bank knows that you have a variety of choices, so you’ll find that banks try to stay competitive when setting rates. Pay attention over the coming years. If you see interest rates rising, you’ll also see bank CD rates rising.

Other Factors

Other factors can influence bank CD rates. For example, you may find that a bank is trying to win some short-term business by offering slightly higher rates. They know that there are people out there shopping bank CD rates, and they hope that once they get a customer in the door the customer will stay (and bring over additional assets).

Another factor is the desired profitability. You may find that credit unions have rates that are slightly higher than bank CD rates. Because credit unions are nonprofits, they can afford to offer a little more to the customer at the expense of reaping higher margins.

Getting the Best Bank CD Rates

Here are a few suggestions that should help you get the best bank CD rates available. First, shop around. Start by checking your newspaper, mail, and banners on local institutions. Check on our CD Interest Rate Scorecard for insight on what competitive institutions are up to.

Another idea is to check any credit unions that you may have a relationship with. Ask how their rates compare to bank CD rates. You’ll often find a great deal.

You should also use the two main factors I mentioned above to your advantage. If you really won’t need the money for a while, lock it up for a longer term (within reason — a bank CD rate may not be the best return if your time horizon is greater than 5 years or so). Also, see what interest rates are doing. If you think they’re headed up, you may benefit by using a shorter term because bank CD rates will be more attractive in the future. Of course, it is very hard to predict interest rates and markets — so don’t knock yourself out trying to time it just right.

Finally, buy in bulk. If you want to get the best rates, sometimes you have to meet certain minimums. If you have your assets spread out at various institutions, you may be missing out on “preferred customer” rates. Find out if there is any advantage to consolidating your assets at a given institution.

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