Certificates of Deposit - FAQs

How Are Certificate of Deposit Rates Determined?

CD rates seem like random numbers sometimes. How do banks determine what they pay? CD interest rates are usually determined by three factors:

The final factor in determining CD rates is if the CD is of a special type. For example, a no-penalty CD may have a higher initial investment requirement or a lower interest rate than a similar-term CD with early withdrawal penalties.

A certificate of deposit (CD) can be used for short-term and long-term funding. The interest rate that your money earns is one of the most important aspects to consider when choosing a CD. When rates are high, saving on a CD can be a good investment. But what about when they are low? It is important to evaluate your financial goals and needs before you decide whether opening CD accounts are worth it. Midwest BankCentre is here to assist you in learning more about CDs and your investment options.

What is CD APY?

An APY for CD rates is the annual percentage yield. You can earn reliable if low yields by investing in CDs. These accounts earn interest at a compound rate, or APY, which is calculated quarterly. The interest earned on CDs is taxable as interest income. You will have to pay tax on the yield even if you are earning above-average yields. Most CDs have an interest rate based on an annual percentage yield, which takes compounding into account. This means that if you open a CD and leave it for a year, it will earn a percentage of interest. However, if you open it for a month, the interest would accrue each month, resulting in a lower annual interest rate.

Does the APY change often?

The rate may vary from time to time depending on the market. You should be aware that APYs are not guaranteed and may be changed without notice. The interest rate and APY for CDs may be the same when you open the account but they may change if you make additional deposits. In addition, APYs may be reduced by fees or withdrawn early.

Why Choose a No Penalty CD?

No-penalty CDs are a middle ground between the liquidity offered by a high-yield savings account (HYSA) as well as the locked-in, steady return of a fixed-term CD. The key benefit is that you can get a competitive rate (usually higher than what an HYSA provides) for the term of a non-penalty CD. This works in a similar way to a fixed-term CD. However, you won't have to pay any penalties if you close the account or withdraw funds before the account's maturity. It doesn't matter what reason you have, you can use the cash to pay an emergency bill or move it into a more efficient savings product. You get predictable returns on your investment with a competitive rate and no penalty CD. This means you can still access your cash. It’s a winning combination for many savers.

Why Choose an Add-On CD?

Add-on CDs, like our Raise Your Rate CD, allow you to make additional deposits into your account before it matures. These accounts offer a flexible method for saving and can be beneficial for investors who are just starting out or who have a limited budget. Depending on the financial institution, you may be limited to the total amount you can deposit or the number of deposits you can make at a time.