Here’s why buying CDs at the absolute best price doesn’t always pay off.

CDs currently yield competitive returns. So, if you want to earn good returns without taking risks, you may be interested in investing. If so, you’ll likely be looking for the most competitive rates as this will most likely maximize your return on investment (ROI).

This makes good financial sense. Higher interest rates are better. Who doesn’t want to make more money?

However, as you explore your options, you may find that you don’t want to invest in the certificate of deposit that offers the highest possible return every time. Here’s why:

You have to judge by looking at the interest rate only.

The Annual Percentage Yield (APY) offered by a particular CD is just one of many factors to consider when choosing an investment.

If you only focus on interest rates, you may end up making the wrong investments. Some other points that should be given equal or greater weight are:

CD terminology

CD terminology is arguably a much more important factor in CD than speed. This term determines:

• How long should you keep your money tied up?
• How long the rate is guaranteed

If you chose the highest priced CD possible, you are likely looking at a CD with a shelf life of about a year or less.

A quick look at The Ascent’s list of top CD rates shows that some 12-month CDs have rates above 5.00%. There are also great six-month CDs with interest rates above 5.00%. On the other hand, the highest 5-year CD interest rates are typically in the mid-4.00% range based on yield.

However, choosing a 6-month or 12-month CD based solely on competitive ROI may not be the right choice. If you think interest rates are about to fall and you want to keep interest rates high for as long as possible, you should probably open a five-year CD, even if it means accepting a lower interest rate.

On the other hand, if you have the money, you can only lock it up for six months, so it’s better to choose a 6-month CD over a 12-month CD, even if the 12-month CD pays a higher yield.

Minimum required investment

The minimum investment amount required is just as important as the CD’s APY. The reason is clear. If you only have $1,000 to invest, it doesn’t matter how good the interest rate is on a CD with a $2,500 minimum investment requirement.

Now, it may be tempting to try opening a CD with a better price along with a higher minimum investment requirement. However, you don’t want to tie up money that you can’t afford to invest over the life of your CD. If you do that and end up having to withdraw your money early, you could be hit with a hefty early withdrawal penalty.

Fortunately, there are many CDs with no minimum balance required to get started. Choosing a CD you can easily afford makes much more sense than risking money by investing money that you aren’t 100% sure you can stay in the CD until it matures.

So when I open the CD do Of course, you want to consider the rate of return. However, if the higher rate option isn’t really affordable or isn’t available for an appropriate period of time, it’s a smarter choice to accept the lower rate for a CD that’s better for you.

This savings account is FDIC insured and can earn 11 times the bank’s earnings.

Many people are missing out on guaranteed returns by letting their money languish in large bank savings accounts that pay little to no interest. we chose Best Online Savings Accounts You could earn 11 times the national average savings account interest rate. Click here Find the best-in-class accounts included in our list of the best savings accounts of 2024.