Picking the Best No-Risk CDs
By sbup Staff
No-risk certificates of deposit (CDs) go by many names in the banking industry. They are commonly called no-penalty CDs, risk-free CDs and liquid CDs among other things. Despite their different names, however, they all fit a general model. These CDs offer increased investment flexibility by waiving the penalties for early withdrawals.
Conventional CDs deter customers from withdrawing money before the CD matures by imposing heavy interest penalties, severely limiting the liquidity of the product. No-risk CDs minimize or eliminate this problem. The downside is that these CDs typically offer a lower interest rate than a comparable conventional CD.
Depending on the current rate trend, no-risk CDs can serve different purposes in your portfolio. When rates are rising, they offer the ability to withdraw funds and reinvest at higher rates before maturity. When rates are falling, they provide the safety of a guaranteed rate with the flexibility of a savings or money market account.
Terms and stipulations can vary significantly among banks, so it’s wise to shop around. Some banks offer an unlimited number of withdrawals, and other banks only allow one or two. Most banks require higher minimum deposits on no-risk CDs, but these minimums tend to vary by institution. Search sbup's CD section for a huge range of offers and rates from banks in your area.
Here’s a few no-risk CDs available for consumers today.
PNC Bank’s (Stock Quote: PNC) no-risk CD, called the “Ready Access CD,” only requires a $1,000 deposit. This CD has two terms—3 months and 12 months. The 3-month CD currently offers a .60% interest rate, and the 12-month CD offers 1.1%, while comparable-term regular CDs at this bank offer .75% and 1.24%, respectively.
Wachovia (Stock Quote Quote: WFC) offers liquid CDs for 3, 5 or 10-month terms. The 3 and 5-month CDs carry a .1% interest rate, and the 10-month CD has a .2% rate. These CDs require a minimum $5,000 deposit and allow you to withdraw or deposit $500 or more every week. In comparison, Wachovia also offers a high performance money market account that pays .1% on $5,000-$9,999 deposits, .2% on $10,000 to $24,999 and continues to increase the interest rate in tiers for higher balances. For deposits over $25,000 this money market account is a better deal because it pays more in interest and has fewer restrictions on withdrawals. The drawback is that this rate does not carry the same guarantee as a CD.
Bank of America’s (Stock Quote: BAC) 9-month “Risk Free CD” offers an interest rate of 2.23% with a minimum deposit of $5,000. This represents an unusually good deal for a no-risk CD in that the interest rate for a standard comparable CD (6-11 months) at the same bank only pays 1%. The Risk Free CD does have some caveats, however. For one, funds withdrawn must be transferred into another Bank of America account such as a checking account. There is no stipulation on how quickly you can withdraw funds from that account, however.
The bottom line is no-risk CDs can vary widely among banks and may offer more or less benefits than other similar products. When shopping for a no-risk CD, look at different banks and consider other options like high-yield short duration CDs and money markets accounts to suit your banking needs.