A high yield CD (hybrid depository CD) combines the safety of a traditional, passbook-style certificate of deposit account with the higher interest rates that come from investing in riskier assets like stocks. A hybrid is a one-of-a-kind account that allows you to grow your money safer than ever before and make it work harder than ever before.
Just like a traditional CD, a high-yield CD gives you plenty of liquidity. Just as with standard CDs, you have seven days in which to withdraw your money. No penalty is assessed for doing so in the allotted time frame.
As with any financial product, it’s important to understand what you’re getting into. High-yield CDs are pretty straightforward to understand. You know exactly how much you’ll get at the end of the term and what interest rate you’ll earn along the way.
3) Higher Interest
You can earn a lot more with a high yield CD than you would with a traditional CD. The interest rate on these accounts is usually above the Federal Deposit Insurance Corporation (FDIC) maximums, which varies based on the bank. Some banks have higher FDIC caps while others don’t. High yield CDs make sense for depositors looking to earn more than what they could get on a traditional CD or wanting funds that can be used to make large purchases, like your home or car.
How They Work
A high yield CD works just like a traditional CD. You deposit a certain amount of money for a specific length of time. But these accounts have higher interest rates, ranging from 0.40 percent to 3.00 percent, compared to a traditional CD’s rate, usually 0.50 percent to 1.00 percent depending on the maturity date and bank where you put your money. These accounts are FDIC-insured on the first $250,000 of your deposit per institution for as much additional protection as you need. As part of the FDIC, your high yield CD is backed by the full faith and credit of the U.S. government.