CD Fees–do Cds have fees?
Although CDs are great investment, they can cost investors a substantial amount of money in certain conditions. When investors allow brokers to find their CDs, or investors withdraw their money before maturity, issuers may charge them hefty fees to do so. Investors must be aware of these fees when opening CD accounts. If investors want to walk away from their investments with all of their principle investments and the maximum amount of interest, they must prevent fees on their accounts.
List of Common Certificate of Deposit CD Fees
1. Early Withdrawal Fees – These are fees that investor pay when they withdraw their CDs before maturity. The fees should be discussed during the time the CDs are opened. The information should also be included in the paperwork that investors sign at the time they open their accounts. The fees may vary by financial institution. Some fees may also include accrued or non-accrued interest. Investors may have to pay a portion of their principle to cover non-accrued interest in the event financial institutions charge such fees. Early withdrawal fees vary, but they may include:
- All interest on CD terms of 1-month, accrued or not;
- 3 months interest on CD terms of 2 months to 18 months, accrued or not;
- Six months interest on CD terms of 2 years or more, accrued or not;
- 10 % of the amount withdrawn;
- Half of the amount of the current and potential interest;
- Half of the interest earned on the amount withdrawn; or
- Fixed rate fees in addition to a percentage of the interest.
Investors should discuss fees with issuer before opening CD accounts. Larger banks may have smaller fees because of the large number of customers. Smaller banks with many new customers may have smaller fees as well. Investors may be able to negotiate these fees in some cases—especially fees from personal banks.
2. Broker Fees – These fees come from financial advisors that handle investors’ investments. Investors pay a fee to brokers who find great rates and terms on CDs in which investors can invest. These fees vary. Some brokers work for themselves, and other brokers work for brokerage firms. Individual brokers may charge smaller fees. CD Brokers who work for brokerage firms may charge fees that are more expensive since they work for someone else. Investors should discuss the fees before authorizing the services.
Tips on Avoiding Fees when Investing in Certificate of Deposit CD
- Do open CDs without withdrawal fees. Not all CDs come with withdrawal fees. Financial institutions offer this feature on some of their CDs. They usually reserve this feature for their customers that make huge deposits. Large deposits help banks make more money so these deposits are great for all bank customers. Investors can eliminate fees with this feature.
- Do not withdraw CDs until maturity. Investors should carefully consider the maturity date that they choose when they open CD accounts. Fees can cost investors principle and interest that they have earned. Investors can also lose non-accrued interest for withdrawing money early. Investors should consider investing money in CDs that allow them to make withdrawals at certain times during the terms without incurring fees.
- Always negotiate withdrawal fees with issuers. Fees can usually be negotiated with financial institutions. Banks that investors are affiliated with may eliminate withdrawal fees for their customers with certain deposit amounts and certain terms. Always try to negotiate fees on CD accounts.
- Always conduct research instead of using brokers. Investors can eliminate fees by finding their own CDs in which to invest. Brokers charge fees to do what investors can do for themselves. The Internet has a wealth of information that can help investors invest in CDs with the best rates and terms.
- Do ladder investments whenever possible. When investors ladder investments, they have money available more often. Traditional CDs lock in investors for a certain time before they can withdraw their funds. Laddering allows investors to receive several interest rates and several terms so money is available when they need it.
- Do consider Bump up CDs. Investors who want to benefit from interest rate increases should choose this option. Some investors incur fees for withdrawing their money to benefit from interest rate increases. Bump up CDs allow investors to have more flexibility.
Investors must be prepared to pay fees when they decide to withdraw funds before maturity or when they use brokers to handle their CD accounts. Fees can easily be prevented by taking precautions before opening CD accounts. Fees can cost investors some of their principle when unexpected situations occur.