We all want to get the best APY rate on CDs, but there are several pitfals to watch out for.
In our "Get The Best CD Rate" discussion forum, regular contributor pbradford6 warned:
- In the past I bought high yielding CDs all over the country and have experienced some problems at maturity time. Years ago I had naively instructed them to mail me a check. Don't do that! I have had checks damaged/torn and lost which increases the time you have no access to your money. I then had them deposited directly into my brokerage account only to be hit with transfer fees of $20 - $30 dollars.
- There is also one other problem that was my fault. You have to know when each CD matures; without instruction the institution will roll over the CD to a like maturity without your knowledge /permission. Then when you realize that the money has been reinvested you are subject to a "premature distribution penalty" when you ask for its return.
This was my reply:
That is REALLY good advice. I only put money in internet banks that allow me to transfer it for no fee to my brokerage accounts or my World Savings Checking account that I use as a central account since I can go to the office less than a mile away and make a stink if there is any hanky-panky (problems with the other bank doing the transfer of funds on time.)
For the really hot rates, you have look at the "dead time" getting your money to and from the bank and calculate how it lowers your "effective" yield. I find I can pick one of the top places on the Best CD Rates forum with a branch near me, such as Countrywide or World Savings, that pay top rates, and simply roll over the CD into a new one with no lost time. You do have to remind yourself to call or go in and get the best short term rate or they will often roll the CD into a lower paying "non special" CD that pays much less when it matures. They give you 7 days after it matures with no penalty. This works well for me and I don't lose any interest to "dead time."
