Why Callable CDs Could Be The Secret To Boosting Your Savings Returns

A CD means Certificate of Deposit and is a way to invest money over a fixed period of time, normally anything from three months to five years. A callable CD means the bank can decide to ‘call’ the CD before the end of the agreed investment period – this means you would get your investment back, plus any interest earned to date, but the CD would be ended.

The details

When you open a callable CD you will be told the maturity date and the call date. The call date is fixed and can be repeated. So for example if the call date is six months in, the CD can be called six months after that date again, and so on until the maturity date. Banks generally make the interest rate higher on callable CDs, because you are taking a risk – if the bank were to call the CD before the maturity date, you risk ‘losing’ the full amount of interest. Normal CDs aren’t callable, but they offer lower rates of interest, because the risk isn’t there.

Why choose a callable CD

A callable CD can be a good idea if you are willing to take the risk of the account closing early. If you’re a smart saver, you could easily do something else with your money afterwards. And, if the bank doesn’t call your CD, then you stand to make a bit more on the interest than you would have done for a ‘normal’ CD.

Charges and fees

There are no charges associated with calling a callable CD, but note that if you decide you need to call the CD yourself, then you will have to pay what’s known as surrender charges. If you think this is likely, then take a look at breakable CDs or other types of savings accounts instead.