3 questions to ask about your CD before you buy

Certificates of deposit, like almost all banking products these days, are more complicated than they used to be.

The concept is simple: you invest a fixed sum of money for a set period of time and you earn interest, usually a higher interest rate than even the best savings accounts.

But these days it can be a little more complex. There are variable rate CDs, CDs with special redemption features if you die, and "call" features that allow the bank to terminate the CD after a certain period of time if interest rates fall dramatically. Banks don't like to be locked into paying you a high interest rate, but they don't allow you to call in a CD when interest rates go up and you're locked in low. I guess that's why they get to be banks and we don't.

Since buying a CD and finding the best cd rates isn't as simple or as risk-free as it used to be, we consulted various government websites to come up with the key questions you should ask before buying a CD. Here goes:

1. Is this too good to be true? You ask this question when you see a bank or a brokerage firm advertising an interest rate that is dramatically higher than all the others. These astronomical rates often only apply for a portion of the amount you're asked to invest and are used as a way to get you to come in and perhaps buy some of their other products.
2. Is laddering my CDs always a good idea? Typically, laddering - or staggering the maturity date of several CDs so you don't have all your money locked up in one fund at one interest rate - is a good idea. But it's not a good idea if you think you may need access to all your money at some point down the road. You could wind up paying penalties for early withdrawals.
3. Who is the actual issuer? This is what you ask when working with a deposit broker. You want to make sure that your money is being deposited in a federally insured facility, and that you don't already have a lot of money in that bank. Federal deposit insurance is limited to a total of $250,000 for each depositor.

Despite all the new changes that have come to certificates of deposit in recent years, they remain a relatively risk-free investment. But it does pay to ask a few questions before you invest.

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