The CD rates on variable-rate CDs will move up and down with the market, which makes these types of CDs great for investors who are willing to take a little risk. These CD rates often pay off much higher dividends than standard CDs. Here, we’ll take a look at variable-rate CDs.
What are Variable Rate CDs?
There is a bevy of variable-rate CDs available to investors. Of course, variable-rate CDs operate similarly to traditional CDs. Like regular CDs, variable-rate CDs require that the investor make a deposit into a certificate of deposit account. The investor is expected to keep the money locked into that account for a specified period of time. Once the CD has matured, then the investor can take out the funds along with the interest that was accrued during the CD’s growth.
However, variable rate CDs can move up or down, depending on interest rates. If the CD interest rates increase, the interest rates on your variable rate CDs will also increase. But, the converse can also happen.
Types of Variable Rate CDs
U.S. Treasury note rates usually dictate the interest rates of variable-rate CDs. But there are special variable rate CDs whose interest rates are dependent upon different factors. Some of these variable rate CDs are dependent upon market indexes or foreign currencies. Many financial brokerage firms can find all sorts of creative variable-rate CDs for investors who want a bigger payoff from their variable rate CDs.
Usually, the interest rates on variable rate CDs exceed the interest rates paid on traditional CDs. This is partially due to the fact that the investor is taking a bigger risk when investing in a variable rate CD.
It’s advisable to consult a brokerage firm before investing in a variable-rate CD. First of all, brokers who have securities licenses can find the best variable rate CDs available on the market. Variable rate CDs comprise a special type of investment, so you should be very careful when investing in these types of CDs. Also, it’s best to compare interest rates from the global market. Only a good financial consultant can help achieve this.
Analyze Interest Rates
Of course, it’s important to study the movement of interest rates in the national economy. In fact, making a determination regarding the future movement of interest rates is the key to understanding variable rate CDs. You are, in effect, betting that interest rates will be generally higher during the span of your investment rather than lower.
There are a lot of ways to evaluate the movement of interest rates. Since different variable-rate CDs are tied to different interest rates, you can find a particular interest rate that you are particularly confident about, and invest in that. You don’t have to only invest in U.S. Treasury note variable-rate CDs.
It’s a good idea to invest in variable-rate CDs as long as you do your homework. This type of CD pays off much better than your standard fixed CD. It’s still a very conservative investment, but it’s an investment that requires careful research. Choose variable-rate CDs and maximize your investment.
Archive for February, 2010
If you’re looking for great mortgage rates, one of the best things you can do is actively compare different lenders’ rates. Government sponsored and private lenders will offer varying mortgage rates, and it’s up to home buyers to decide what is best for them.
The Importance of a Strong Down Payment
Good credit and steady employment can really help you secure good mortgage rates. Did you know that qualified home buyers can secure a mortgage and only put down a 3% down payment nowadays? Fannie Mae and Freddie Mac will both purchase up to 97% of mortgages! But remember, a low down payment mortgage will incur higher interest on the mortgage.
The more money you can spend on your down payment, the better off you’ll be. Fannie Mae recently initiated a “start-up mortgage” plan. If you can put down 5% of your down payment but you have a small salary, you can qualify for this plan. Of course, only a Fannie Mae approved lender can offer this deal.
Look at the Private Market
There is also a wealth of options available in the private market. Washington Mutual started a home loan program wherein buyers who can put down 10% down payment on their homes don’t have to pay for mortgage insurance. Instead, the savings and loan places the mortgage costs into the interest rate. The result: you get a tax-deductible mortgage!
You can even take out two loans. This is called taking out piggybacked loans. They’re also called 80-10-10s. In this model, you put down 105 of the value of the home. Then you take out a 30-year fixed mortgage loan for 80% of the value of the home. Then, you take out a fixed rate 15-year mortgage for the 10% that is left over. This will cost more than regular mortgages, but it’s a lot cheaper than paying for mortgage insurance.