Dedicated to Deposits: Deals, Data, and Discussion

4 Different Certificate of Deposit Options

While the traditional certificate of deposit is the most popular type, there are other varieties of CDs being offered by financial institutions that are gaining popularity due to their flexibility. A traditional CD will still offer the highest yield in most situations, but you may find that the other certificate of deposit options are more suited for your needs.

Here are 4 Different Certificate of Deposit Options:

Traditional CD:

when people talk about CDs, chances are this is the savings product they are discussing. You deposit a specific amount of money for a specific period of time, in order to receive a fixed interest rate. When the CD reaches its maturity date (the predetermined date selected when you deposited the money) you would have the option to withdraw the money or roll it into a new CD for another term. Most banks and financial institutions will let you add more money during this roll over term, also. Removing money from a CD before it reaches maturity is costly, with penalties and lost of interest definite; and sometimes a loss of your principal deposit, as well.

Brokerage CD:

as the name implies, a brokerage CD is sold through a broker. Because banks using brokered certificate of deposits compete nationally, the rates are often higher than the CDs you can purchase from your local bank. Brokered CDs are also more liquid than a traditional certificate and can be traded like bonds, but when doing so – you can't be guaranteed you won't lose some of your money. Brokered certificates are insured by the FDIC, as long as you hold the certificate until it reaches it's maturity date.

Liquid CD:

if the idea of keeping your money in the bank for a certain period of time scares you, the liquid certificate may be a good option. These certificates allow you to withdraw money without penalty before the maturity date, but you probably have to maintain a minimum balance, and leave the money in the certificate for a minimum length of time before you can withdraw it without penalty. While it's possible to withdraw money from a liquid CD before the maturity date, there is likely to be a maximum allowed withdrawal limit placed on the account, which means you can't just pull money out of the CD as easily or conveniently as you might a savings account or checking account. Liquid CDs have lower rates of return than traditional or brokerage CDs.

Bump-Up CD:

one of the primary disadvantages of saving money in certificate of deposits is that you lock in the interest rate for a specific period of time. If you lock your money in for two years at the current rate, and interest rates go up during that time – you're not earning as much as you could be. A bump-up certificate of deposit typically allow you to get the higher rate one time per term; so if you lock in and discover six months later that the interest rates have gone up a half percent, you can call the bank and ask them to bump-up your rate for the rest of your certificate's term.

These four options are the most common types of certificate of deposit products. You also can choose from a zero-coupon certificate which lets you buy the CD at a discount compared to what the final value will be when the certificate matures and callable CDs, which could end up with a lower interest rate than what you started out with. Discuss your options with a trusted financial professional to determine which type of certificate of deposit is best for your needs.


Comment #2 by Anonymous posted on
On a "reverse mortgage" who decides on what type of CD that is issued to the borrower?

Do I decide how much money I want to withdraw each month, or does the lender?

Who decides on what bank I will be using for the deposit.