If CD rates continue to tumble, will there eventually come a point where it no longer makes sense to invest this way? That was the topic of conversation in a column I read recently at bankrate.com. The question posed was: When one of your CDs matures, how low of a CD rate would it take for you to keep that money in a liquid account instead of rolling it into a new CD? For example, if the best long-term CD rate you can find is only a measly one percent, would that be so low that you would just move the money into a savings or checking account?

This sounds unfathomable to savers, but it could in fact happen if the Fed’s pledge to keep rates low until late-2014 materializes. Some internet banks have five-year CD rates dipping perilously close to the one percent mark – the 5-year CD APY at iGObanking.com is only 1.10%. ING Direct’s 5-year CD rate is even lower with a 1.00% APY.

There are two reasons that CDs are considered the favored form of saving money over a liquid account like a CD. Not only have CDs historically offered rates higher than those of bank accounts, but they also offer rates guaranteed not to fall until the point at which the bond matures. If CD rates continue to fall, those two advantages become less and less relevant. The Banktime columnist states that he previously mulled over this issue with savings accounts, the interest rates of which have also collapsed in the past several years. Per the poll, sixty percent of readers determined that one percent was the breaking point at which savings account rates no longer mattered. With rates so minute, the extra amount that you could earn by moving your money to another savings account may be too small to make the effort worthwhile. The rate literally matters no longer.

CDs may be about to cross into the same territory. The effort to open a new account is substantial, but there is also the problem that locking one’s money into a low rate for an extended period of time is financially risky. A mild early withdrawal penalty can mitigate this problem to some small extent, but there are still potential risks. Those who want to keep their money one hundred percent safe with no risk at all of loss may have no alternative to a CD but to turn to a checking or savings account. The Bankrate columnist says that, if you had a five-year ING Direct CD maturing today and you wanted to keep your money with ING Direct, he believes most savers would choose ING Direct’s savings or checking account instead of a new five-year CD with a 1.00% APY. Currently, ING Direct’s savings account pays 0.80%. That CD rate isn’t high enough to make up for the loss of liquidity in my opinion. However, it should be noted that the savings account rate may be much lower next year. That doesn’t help make the CD much more attractive. Even if the savings account rate falls to 0.40%, that 1.00% CD doesn’t look much better. In short, I think there’s a CD rate so low that most everyone will choose the liquid account over the CD.

And yet, the columnist says that he is not yet abandoning ship when it comes to CDs. His opinion is that we have not yet crossed the threshold of irrelevance with these bonds, because carefully-chosen long-term CDs remain safer for secure deposits than stashing money in liquid accounts. The columnist recommends using CD ladders with the highest possible rates and the lowest possible withdrawal penalties, just in case rates should suddenly make an upswing. For savers with CDs maturing over the next year, CIT Bank’s 2-year Achiever CD can be useful. If CD rates continue to fall, you can always fall back on this CIT Bank 2-year CD which allows for a one-time add-on deposit. But you will need to watch the system and take advantage of special promotions to maximize your return.

For those in the New York-New Jersey-Connecticut tri-state area, Hudson City Savings Bank might be a more realistic option. (www.hcsbonline.com) The bank still has the second highest rate on the leaderboard with 0.75% APY. In terms of convenience, it’s probably a much better bet with one hundred thirty branches in New Jersey, New York and Connecticut. Signing up with them requires a minimum deposit of five hundred dollars if you live in the aforementioned states, but one of five thousand dollars if you live anywhere else.

The third and fourth banks on the chart are situated in my home state of Florida. Virtual Bank (www.virtualbank.com), the online division of Lydian Private Bank, based in Palm Beach, and Sanibel Captiva Community Bank (www.sancapbank.com), which has three branches in southwest Florida, are both offering 0.60% APY at present. Virtual Bank requires a ten thousand dollar minimum deposit, and Sanibel Captiva requires just a one thousand dollar deposit.

Lowell’s advice for seniors is to bump a bit more risk into their portfolios, while at the same time ensuring that they don’t spread their investments too thin. Additionally, he says, financial education should be a priority of all savers in these changing times. The old ways just don’t work anymore, and those that can’t adapt their ways of doing things will surely get caught in the undertow.

In order to try and keep some semblance of life stirring the moribund housing market, the Federal Reserve has pledged to keep the federal funds rate at or near zero percent until mid-2013. That means that seniors – and savers in general – holding out for better rates really should not hold their breath, since we are unlikely to see any significant changes in the next two years. What should senior citizens and others living on a fixed income do amid low CD rates to try and stay afloat? For one, says Lovell, elderly consumers must make a point of taking more a portfolio position with regard to saving. The old rules no longer work. It used to be the case that you could ladder CDs and keep up with inflation, but those days are long gone. If they want to maintain any semblance of an income off their investments, seniors need to include various kinds of investments including dividend-paying stocks, junk bonds, laddered bonds, foreign bonds and dividend stocks.

The problem with senior savers, says Lovell, is that they tend to be risk-adverse. They like CDs because of their safety, and they really like laddered CDs because they feel as if they have a steady income stream and a constant overturn in their investments. To survive nowadays, says Lovell, seniors need to look at their net worth and consider adding some risk to their portfolios. A recent study regarding low-volatility stocks, by Malcolm Baker of Harvard University and Jeffrey Wurgler of New York University in the Financial Analysts Journal, shows low-volatility stocks are less risky and have a higher return than the overall market. It’s true that your portfolio does have some high-risk components, then, but the funny thing is that the portfolio as a whole is actually less risky, especially if you use a buy-and-hold strategy. Plus you actually have a chance of seeing some returns on your investments.

Another change you might have to make? Handling your own money. The financial world has changed a lot in the past several years, and unless you hold some sort of a degree in finance, it’s likely that things are just too complicated for you to handle solo. Seniors need help from the pros, and there’s a gap in the availability of that help unless the seniors in question have already lost their money or are in or near bankruptcy. There are too few of these organizations that develop the expertise and license to guide the lower and middle class seeking retirement guidance. Local, state and federal governments, as well as charitable institutions, need to understand many individuals and families don’t have the sufficient savings to justify financial planners. When it comes down to paying the electric bill or hiring a financial planner, even if the latter will yield greater income in the long run, people are bound to make the choice that’s immediately self-serving. That leaves them on their own without the education or tools needed to make proper decisions. It’s true that one can learn all sorts of things on the World Wide Web, but not all seniors have online access – and those who do may become befuddled by the contradictory and/or self-serving info available. Unless we address the issues of seniors’ increasing dependence on Social Security as the result of ignorant and/or desperate financial decisions, it’s likely that many more seniors will lose their current standard of living.

A recent New York Times article dedicated to these changes mentioned the fact that many account holders are being blindsided by nickel-and-dime charges that suck small profits off just about everything – from card replacements to simply using one’s debit card each month. One customer quoted in the article was Ben Ryan, a Citibank customer who recently switched the type of checking account he carried with the major national bank into one that would not carry a twenty dollar monthly fee, as did the midtier account he held before. Ryan says that it took no less than forty-five minutes on the phone to make this change.

Although its monthly fee for debit card usage was shot down by the court of public opinion, Bank of America has clearly not given up on the fee game. As evidence, witness their newfound penalty for lost debit cards – five bucks, or twenty if you want expedited delivery. (And if you lost your debit card and are facing seven to ten business days without a convenient way to pay for things or withdraw cash, I’m guessing you will.) But BoA is not the only offender. U.S. Bancorp is now charging fifty cents per check to deposit funds with a mobile phone. As of December, TD Bank, customers will be charged fifteen dollars for each incoming domestic wire transfer.

If the Bank of America debit card brouhaha taught banks anything, it’s that fees will inevitably enrage the public and draw criticism and scrutiny from regulators. Bank of America tried transparency and advance warning with its debit card fees, and that didn’t work. Therefore, banks are turning en masse to a score of new, under-the-radar fees. In short, don’t expect your bank to give anything away for free nowadays.

Alex Matjanec, a co-founder of MyBankTracker.com, points out that the loud and immediate customer backlash to Bank of America’s fees did lead to the company recalling the policy, but consumers should not assume that they’ve won any meaningful victory over banks. In fact, Matjanec points out, these institutions have actually been tacking fees on left and right, or taking previously existing fees and jacked them up, “making them harder to avoid.”

Don’t let the banks’ boo-hooing convince you otherwise: these guys are still making some profits off checking accounts. Still, the pittance that they earn off these retail accounts is nothing compared to the twelve billion dollars of lost annual income that evaporated when Congress set in place new rules that capped lucrative overdraft fees and decreased the amount of money that banks made off debit interchange (swipe) fees. The pressure is on to make up those funds, let there be no mistake. This is in addition to the fact that, thanks to moribund levels of national lending and marginal interest rates sticking pretty close to zero, banks are having a really hard time attractive decent investors or investing all their deposits. It’s believed that the investment gap is causing banks to lose an additional eight billion dollars a year on average.

To pick up the lost profits from checking accounts, banks would need to gain back somewhere between fifteen to twenty dollars a month per account. That’s fifteen to twenty dollars MORE than banks were earning in the past, according to an analysis of the interest rate and regulatory changes on checking accounts by Oliver Wyman, a financial consulting firm. In the current financial atmosphere, there’s just no chance of that happening. Ergo, the new charges. Customers are seeing a creeping tide of higher fees for everything from ATM withdrawals to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers. Thought you got away from those debit card fees? Think again. They haven’t gone away, they’ve just been repackaged in with higher monthly fees on checking accounts. Bank of America may have ditched its five dollar monthly debit card fee, but it silently raised the cost of its basic MyAccess checking account by more than three dollars a month earlier this year. Monthly maintenance fees now run twelve dollars a month, up from the previous cost of eight dollars and ninety-five cents.

Chase and Citigroup were quick to distance themselves from the Bank of America drama with debit cards, but they also cranked up the prices of their entry-level checking products… the only difference was that they managed to do it without a complete PR nightmare. Effective this month, Citigroup raised the maintenance fee for its entry-level checking account up to ten dollars a month from the previous cost of eight dollars. For its part, Chase began charging standard checking account holders twelve dollars a month back in February. Previously, many of these customers paid no fee at all.

Officials at these banks argue that they were nothing but upfront about the increase in pricing and have set up a number of ways for customers to avoid these unpopular fees, such as maintaining a minimum balance or signing up for direct deposit. Given the uproar, some bankers say the ultimate answer lies in enticing customers to give them more of their business in other services — not by making up the lost revenue on checking accounts. Todd Maclin, the head of Chase’s retail and commercial bank, confirmed this by stating that “the long-term game is improving customer experience scores, so over time you win more business and make more money.”

The truth of the matter is that “free” checking is not actually free for banks. It does cost between two hundred and three hundred dollars a year for banks to maintain a retail checking account. These costs come from many places, including staffing bank branches and covering federal deposit insurance premiums. Previously, banks recouped much of their expenses by collecting hefty fees from merchants each time customers swiped their debit card or overdrew their account. What we grew used to as “free checking” came about because of that system of making money.

Unfortunately, changes to the economy upset the status quo and shook things up over the past two years. Not only has income earned on deposits fallen, but the revenue gained from fees has plunged by as much as half because of the new regulations. Oliver Wyman estimates that, today, banks are expected to take in, on average, only eighty-five to one hundred fifteen dollars in fees a year per account — making it especially hard to turn a profit on customers with low balances. They just aren’t hitting that threshold for recovering their administrative fee. Vernon Hill II, the founder of Commerce Bank whose retail-oriented approach transformed it into a large regional player before it was sold to TD Bank, points out that the banks “have got to make up the income some place,” and that he believes fees will be the place that banks get their cash back.

Customers are not the only ones irate over these new fees. Lawmakers have been keenly watching banks’ moves, considering the hard work that Congress has invested in keeping financial institutions from bleeding Americans dry with high fees and penalties. Just recently, two Democratic senators, Richard J. Durbin of Illinois and Jack Reed of Rhode Island, urged the Consumer Financial Protection Bureau to adopt a more consumer-friendly disclosure form, akin to the nutrition label on food packaging, for all the fees attached to a checking account. In their motion, they pointed out that American consumers “have had enough of banks that try to sneak fees past them that are hidden in fine print or imposed with no notice at all.” That there are any hidden fees is not at all hyperbole – last year, a Pew Charitable Trusts study found that bank customers could potentially incur no fewer than forty-nine different fees on a typical checking account. I’ll bet if you ask the average banking customer, they aren’t aware of all of these!

New fees, of course, will cover a small part of the gap in profits. Banks are also hoping that new products catch on. Some are steering lower-income customers to prepaid cards, which were not affected by the reduction in debit card swipe fees. For example, TD Bank officials claim that one of their most popular checking products is a simple checking account with no minimum balance requirement introduced in March. Despite the ostensibly detracting fact that the account comes with a two dollars and ninety-nine cent monthly fee, some three hundred thousand customers have already signed up for one. And nearly every major bank has embarked on a cost-cutting campaign, eliminating branches and staff. After a fifteen-year expansion, the number of branches has fallen almost one and a half percent to ninety-eight thousand two hundred from its peak in 2009, according to SNL Financial.

Of course, savers are also continuing to take a heavy hit from banks’ woes. Banks have been consistently decreasing the rates they pay savers. The average interest rate for deposits has fallen to just three-quarters of a percent from eight-tenths of a percent during the first six months of this year, according to Market Rates Insight. Most consumers barely notice, but it translates into real money — about one and a half billion dollars a month in savings industrywide. Banks are continuing to chip away at consumers’ wallets, basically. They are taking a hefty bet that consumers will not notice the quiet creep of existing fees. As Richard K. Davis, U.S. Bancorp’s chief executive, told investors on a recent conference call: “We’ll see if our customers complain and move, or just complain,” he said. Such hubris!

If complaints accumulated by the Times are to be believed, banks may also be purposefully making it tough to move into cheaper checking accounts. Remember Ben Ryan, our Manhattan novelist? He claims to have spent forty-five long minutes on the phone with several Citibank representatives just to switch out of a midtier checking account that would carry a twenty-dollar-a-month fee and into a more basic one, where he could avoid a charge. Citi officials say they would violate the law if they automatically switched a customer into a different account, and believe requiring a conversation with a representative helps customers better understand their choices. But Mr. Ryan said the experience left him more confused. “You call, and they don’t know what you are talking about. And then there all these different options,” he said. “There is no simple way to switch.” Perhaps, given banks’ underhanded tactics as of late, that’s the whole point.

According to a recent article in the Miami Herald, many seniors are so concerned about their financial wellbeing in light of the poor CD returns that they are seriously questioning whether they will be able to stay afloat with just their Social Security and other retirement savings. One of these people is Joan Siegel of Hallandale Beach. Siegel was terrified recently by the discovery that there was just one dollar and thirty-six cents remaining in one of her main accounts. Siegel, a seventy-five year old former company vice president, says that she fears getting down to the point where they is not anything left. She says that she is worried about the future, and that her prospects are “scary” at this point.

The past four years have seen a plummet and then stagnation in yields on certificates of deposit and savings accounts, much to the dismay of savers. Last week, the Federal Reserve announced a plan to push interest rates even lower by selling shorter-term U.S. Treasury bonds and buying longer-term ones. That’s on top of the Fed declaring it will keep rates low until 2013. The point is to keep consumers buying stimulating the moribund housing market to at least some extent. Unfortunately, low rates giveth and low rates taketh away.

As of right now, the average twelve-month CD yields just a 0.4 percent return. On a one hundred thousand dollar deposit, that’s a paltry four hundred dollars. Per Bankrate.com, a personal finance website out of North Palm Beach, rates on the same deposit averaged 2.4 percent in 2008 and 3.75 percent the year before that. Nor are CDs the only short-term investments affected. The annualized yield on money market mutual funds is a pathetic 0.04 percent, or one-tenth the level of one-year bank CDs. In other words – barely worth your gas money to go to the bank.

Mari Adam, a Boca Raton certified financial planner, confirmed the fact that these interest rate declines are tied to federal efforts to keep interest rates on mortgages and other loans low so that borrowers will start spending again. “Corporations and even the U.S. government benefit by obtaining low-cost financing,” she said. Sure, that’s true – but nobody takes into account the plight of savers… specifically those who might have been planning on using these certificates to fund their retirement as they crept past their working years. Savers and retirees have seen their interest income “decimated,” as put Greg McBride, an analyst at Bankrate.com.

It’s thought that one in every six American families owns a certificate of deposit. The oldest consumers (those aged seventy-five or higher) are most likely to own one, according to the latest data from the Federal Reserve. With this formerly-reliable form of saving backfiring like crazy, older Americans are facing a quandary as to how they should try to get by. Some retirees are taking the plunge and going back to work for extra cash, despite the fact that they felt that their working years were behind them. Others are spending their hard-earned principal out of fear of outliving their life savings. Yet others are jumping into risky ventures, despite the stiff consequences they could be facing if they lose out.

One such person is Joe Alessi. This ninety-year-old World War II vet lives in Hollywood (the South Florida version) and grew weary of earning a pittance on CDs and other investment accounts. Bolstered by his broker’s encouragement, he is now putting his faith in securities and bonds: namely a fund that buys bonds from such countries as Russia, Venezuela and the Philippines. He’s heavily invested at this point, and a bit nervous. He says that he’d much rather have his money in a CD. The problem is that he can actually make a decent return with this new strategy: far more than the half a percent he was earning in a CD. Recent statements show that he is, indeed, making money. And money talks. Tom Balcom, president of the Financial Planners Association of South Florida, backs the idea that some investors out there have no choice but to make a change. Otherwise, he says, they’ll just sink. Risk becomes necessary if people don’t want to scale back their standards of living.

Adam points out that there is a middle ground between CDs’ abysmal rates and high-risk ventures with only potential high yield. High-quality, investment-grade bonds may not earn much returns, but even a return of three or four percent easily beats the pants off CDs. She also suggested preferred stock, foreign bonds and even high dividend stocks. “There are plenty of good income opportunities out there if you’re willing to think outside the box,” Adam said.

Unfortunately, some older savers fear that, even with creative options and canny utilization of the money they have, they may end up outliving their savings. About one in four people over fifty have already exhausted all their savings, according to a recent nationwide AARP Public Policy Institute survey. The bad economy has forced them to spend their nest eggs, said Victoria Funes, associate director for the AARP Florida. Some of them lost jobs in the economic crash, others have taken a hit from their tanking 401(k)s.

There are also those seniors who got hit with declines in the stock market. Two such seniors, Comcast retiree Ed Schwartz of Weston said he and his wife Madaline saw ten thousand dollars of their life savings disappear just in the last week from their stock portfolio. Seventy-three year old Schwartz grouses that costs are up, but the balance of their nest egg is down. He reports that he and his wife have already unloaded some of their stock and decided to cut back on expenses and scrapped vacation plans. Schwartz added that he and his wife worked hard all their lives and faithfully saved to be able to have a secure retirement, but that is now in doubt.”I am sick knowing that today’s market has wiped out a huge chunk of our investment income,” he told the newspaper. “I can’t see how we can keep going at this rate.”

It’s a sentiment echoed by fifty-five year old Joe Cashman of Pompano Beach. Recently retired from his job with the Department of Justice, Cashman has started attending job fairs in the hope of scoring a new position.

He is looking to make a little extra cash to make up for losses due to low CD rates – just a bit to help pay for the mortgage.

Everyone has taken a hit from the Great Recession and its attending plagues: the housing crash, the unemployment crisis, and the ongoing threat of a double-dip. Still, it’s hard not to sympathize with seniors, who are one of the most financially-vulnerable groups in our society. Not only have these people worked their whole lives to earn a retirement that is being swiped from them, but many simply do not have the strength and good health to work if they wanted or needed to. Their situation is dire, and it is my sincere hope that the ones who can hold out are able to see a return in their investments sometime in the near future.

Unfortunately, the news of low rates is not good for everyone. Those who are on a fixed income and are looking at the possibility of rising energy and food costs are singing the blues, as are those who are invested in the stock market. People with money in the bank are hurting too, considering the fact that many bank-savings rates are less than one percent at present. Those who have retirement money wrapped up in CDs are sure to be devastated by the thought of another twenty-four months of basement-level rates.

Three years ago, the average yield for a one-year CD was over two-point-three percent. Nowadays, you would be lucky to get half of one percent. Money market mutual fund yields are at a fraction of a percent as well. Considering that inflation was over three and a half percent last year, some savers may have actually lost money by investing. According to Bankrate.com, a consumer savings monitoring site, the current yields simply do not compensate for inflation. And yet, a federally-insured bank remains the safest way to tuck away one’s cash. It’s a frustrating quandary.

Homeowners, on the other hand, are winning big in this situation. Especially pampered right now are those homeowners with adjustable rate loans of the 5-1 model who have already passed the first five years of fixed rate payments. The next several years should be kind to these folks, say pros. Also in good stead? Those with outstanding home-equity lines of credit, which carry variable interest rates mostly based on the prime rate, which also trends with the federal-funds rate. Mortgage rates are resting at a half-century low right now, thanks to low interest rates. According to Freddie Max, the mean rate on a thirty-year fixed-rate mortgage rose a bit last week to four point two percent after seven consecutive weeks of declines. A year ago, the thirty-year fixed-rate mortgage stood at four point four percent. The 5-1 ARM slipped to just below three point one percent, a record low.

Credit cardholders also have cause to celebrate low rates… unless they are of the ilk that doesn’t pay bills when they are supposed to and gets hit with penalty charges. As a condition of the Credit Card Accountability, Responsibility and Disclosure Act, most banks reset their annual percentage rates to variable terms, meaning they could rise (or fall) along with the prime rate. According to Ben Woolsey of CreditCard.com, it’s unlikely that the rate collapse will lead to “any cost-of-funds pressure on credit-card issuers to increase.” The director of consumer research noted that “it appears that banks are opening up more credit to people with excellent credit.” Lower rates does mean that it is more crucial to pay off your card balances, though. Since you’re earning very little return on savings accounts and CDs, the amount you pay in interest-rate charges has more impact on your total budget and cash flow. As a general rule, interest earned on savings accounts can help offset the interest paid on credit cards. That’s not the case right now, however.

This is big news for savers, considering the fact that traditional CD rates are (no exaggeration), in the gutter right now. Most people would do anything possible to score a better rate, even if the improvement is only a few fractions of a percentage point. For those who qualify for “relationship CDs” with their bank, better rates are no longer a function of exhaustive internet searching and turning your money over to a potentially-shady bank that offers good returns but has no history.

What is a relationship CD? In short, it is just a normal CD with a little extra flavor! Relationship CDs share a great deal in common with traditional CDs, excepting the fact that consumers are required to have an additional existing account with the bank in order to be eligible for them. The grand idea behind any exclusive product is that it is more attractive than those open to the general public, but to make sure a relationship CD really is a good deal, you have to look at all aspects of the relationship – the CD rate you get, plus the terms on the other account you are required to maintain. It may or may not be worth it for you to build a banking relationship with a new financial group just for the purchase of buying CDs from them.

Don’t think for a moment that banks offer better deals to their customers out of the goodness of their cold, craven hearts however. Keep in mind that CDs produce terrible returns for banks right now, so badly that most banks can’t even be bothered to try and attract deposits because they are so used to the new psychology that people won’t deposit as long as rates stay low. Why, then, are banks interested in courting customers with multiple accounts? It’s because, not surprisingly, the CDs can be a sort of gateway drug to other usage: if banks are looking for things other than interest rates that they can use to tie a customer into the bank for the long term. They will get their savings money, and maybe their mortgage. The CDs don’t make a lot of money, but they serve their purpose. Acquiring and keeping customer relationships is a time-consuming and expensive gamut for banks. CDs can “hook” good customers into a profitable (for the bank) relationship if they can garner more revenues. Cheaper CD rates that require membership tp join up will definitely serve that purpose.

If you have an existing relationship with one of more banks, it might just be in your best interest to see what you can get in the way of better rates. Have a checking or savings account? This can only work in your favor! If you are shopping for CD rates, the message is that you might do better if you have other bank accounts that you can put on the table. This may include a savings account, a checking account, or a credit card. Even if you don’t think that the bank offers such a program, make sure that you raise the possibility of bringing along these other accounts whenever you discuss rates with a banker. This can open up a valuable discussion if the topic has not already come up.

Be sure to go ahead and ask if there is a discount for existing customers! You may not be able to tell just based on signage or advertisements, because it is not feasible for banks. Although some relationship CD rates may be advertised, it’s just a fact that the pricing of bank products is complex and changes frequently. Therefore, you absolutely must be sure to ask directly about the possibility of relationship pricing before you sign up for a CD or any other bank product. Know what you are getting into before you sign… a valuable life lesson!

Of course, says Forbes.com, it helps to ensure that a relationship CD is truly your best option in the first place. Scoring a relationship deal on a new certificate is only great if you don’t give up too much to get it. It is very important to compare CD rates with the terms on any related accounts to make sure you are getting a good deal overall. Math, after all, doesn’t lie! Run the numbers to see what you are saving and what you could get elsewhere, taking into account all of your options. Make sure that you have some prices listed from other banks as well!

For example, you might be pretty darn excited to find that you can pick up an extra half of a percentage point on a ten thousand dollar CD, if you enter into a relationship CD as the result of you having a checking account as well with your lender. But slow down and think about your situation for a quick moment, for your own good. If your extra half a percentage point means giving up free checking at another bank, keep in mind that the extra CD rate will only earn you fifty a year. If you would end up paying more than that in checking account fees, one might say, then the relationship isn’t worth it. There are cases, though, where the numbers will work in your favor. It is for these listed reasons that you should always try to strive to make the most of your banking relationships to avail yourself of more favorable CD rates.

The U.S. Securities and Exchange Commission defines a CD as a special type of deposit account with a bank or thrift institution that most generally offers a higher rate of interest than a regular savings account or even an online savings account. Like savings accounts, these certificates are insured by the Federal Deposit Insurance Corporation (FDIC) for up to two hundred fifty thousand dollars per depositor, so you are never in danger of losing your investment. That’s a good thing, especially in these days of plummeting retirement funds and collapsing home equity imperiling those who have worked hard for their goods.

When you purchase a CD, you invest your money for a fixed amount of time. This interval may be as brief as three months, or as long as five years. In between there are six month, twelve month, eighteen month, twenty-four month, and thirty-six month bonds as well! Your issuer (usually a bank) pays you a predetermined amount of interest at this interval. When you cash in your CD at the end of the time period, you are sure to be paid out the amount of your original investment plus the accrued interest. As a general rule, the longer the time period you select, the higher the interest rate you will receive. Three month CDs (especially nowadays, with rates at historical lows) generally offer the lowest rates nowadays, with certificates of a few years having better rates. But there is even more to picking your ideal CD than just the term.

To make matters a bit more complex, there is a veritable buffet of CD varieties. They include fixed-rate, variable-rate, long-term, bump-up and other types. What type is the best for you will depend, first and foremost, upon when you will need to liquefy the money. For example, there is very little point in getting excited about the relatively-high yield of a five-year certificate when you are planning on needing the money in just two years. It’s not as if you can just withdraw the money whenever you want without penalties, so you should be reasonable certain that you won’t need it before the CD matures.

There are a few other things to consider, too. Long-term, high-yield CDs may include a built-in “call” feature, through which the bank can terminate it after a fixed period of time if interest rates fall drastically and they do not want to be obligated to pay out for the full term. As the consumer, naturally you don’t have the same option to “call” the CD. Nowadays, some exotic CD varieties are also hitting the market. These include the variable-rate CD and included in that category is the bump-up CD. A variable-rate CD is pretty much what its name implies: the interest rate can change during its lifespan based on market fluctuation. It is of critical importance that you make sure you understand how and when the rate can change before investing.

Some variable-rate CDs pay interest rates according to the performance of a specific market index like the S & P 500 or the Dow Jones Industrial Average, and you will want to know how to follow these indices to keep track of your money. There is also the bump-up CD, which allows you to request a one-time rate increase before maturity. This type may be of especial interest to savers if interest rates ever start a climb back to what they were before the recession. An example of such a bond would be if you bought a twelve-month CD at a certain rate and three months into the term you notice the bank is offering a higher rate than you’ve gotten. You tell the bank that you want that higher rate for the remainder of your term. Generally savers are limited to just one bump per term, so it behooves you to think carefully before calling for a bump. The interest rate for such a bond is likely to be lower than the norm.

It can be tempting to try and snag the CD with the absolute highest rate, but this is an interesting thing: whether you know it or not, the highest CD rate available may not be the best one for your circumstances. There is a process towards finding which CD will actually serve you best. First of all, you ought to compare CD rates offered at a few different banks or credit unions as your first step. After that, you might want to turn your attention to the financial condition of those banks offering the most favorable rates – are they a small bank knocking on Death’s door and trying out some crazy CD rates as a last-ditch survival effort? This is not all that hard to check into – publicly-traded banks release financial statements and you can also check for recent news articles to see how those banks are doing. Verify that the bank is FDIC-insured at FDIC Bank Find to make sure that your money is safe no matter what.

Your next step in determining whether you should give a bank your money to hold in a CD? How and when the interest payments are calculated on the CD you’re considering buying into. The more frequently the interest is calculated, the greater your yield. When the calculations begin is another feature to consider. Some financial institutions begin calculations on the same day as your deposit, while others start on the first of the month or even the first of the quarter following the deposit. The end date for calculations can vary just as much. This is something that not lots of savers look into ahead of time, for you can beat the pack by taking this oft-ignore factor into consideration.

Of course, the best length for a CD is another very subjective question. How long a CD should you buy? Well, in order to derive the maximum benefits of a CD, you need to be able to keep your hands off your money until it matures. You will need to take into consideration how long you can go without needing that money. Can you live without it for three months? A year? Five years? You can redeem a CD early, but you’ll usually pay a hefty penalty, and that kind of cancels out what you’re trying to do, which is invest through savings. It’s important to take a realistic personal inventory and make the right choice for your situation. If there is a question as to whether you might need it, one thing that smart savers do is to create a CD ladder, which is a group of several CDs with varying maturity dates so that your money becomes available to you on a regular basis should you need it.

Banks have responded to consumer dissatisfaction with CD rates by unveiling some products that are still considered quite “safe” in terms of guaranteed investments, but also give savers the opportunity to garner a slight bit of an additional return over CD rates. Naturally, as is the case everywhere in the financial world, greater risk usually accompanies a greater opportunity for increased return. You must also accept the fact that, if you desire more flexibility to cash in on increasing interest rates for CDs, you usually are required to accept a lower starting interest rate.

Rising rate CDs are the first choice for CD alternatives. These bonds came about in response to investors’ paranoia about being entrapped in low-yielding CDs for a long time, and missing the best rates when they (hopefully) come back around. With experts consistently predicting that rates will soon begin to rise (even though this promise has not yet materialized!), this is a very real concern. Rising rate CDs vary between lenders, but their common theme is that investors are allowed to bump their rates up a certain number of times throughout the life of the CD.

To make an example of how this works: Bank of America’s Opt-Up CD has an eighteen-month term. Savers are allowed to raise their rate one time after the first six months of the CD. In general, rising rate CDs allow savers a predetermined number of chances to bump up their interest rate if rates are climbing and the current figures are better than the ones at which they signed on.

A close relative of the rising rate CD is the step-up CD. This bond is a bit different from a rising rate CD, because the interest rate rises automatically a predetermined number of times if rates go up, without any intervention from the investor. Liquid CDs are yet another variation, through which savers may withdraw from a CD and deposit their money into a CD with a better rate if rates increase.

A very different alternative to a mainstream CD is a commodity certificate of deposit, which is designed to be an attractive prospect to those investors who are bored or not especially intrigued by normal bonds. This type of CD secures your initial investment in the way a normal CD does, but it also permits investors to direct their money into ten different kinds of commodity investments: gold, silver, platinum, copper, nickel, crude oil, soybeans, corn, sugar and lean hogs. One example of this kind of bond is the MarketSafe CD offered by EverBank. It has not received great reviews from financial advisors, since returns from the commodity investments are restricted. These CDs generally out-perform their mainstream brethren over a five-year span, but the Wall Street Journal has suggested that smart savers might maximize the potential in this type of bond by investing a portion of their money in a traditional CD and the rest directly in commodities, where returns won’t be restricted.

There are also fixed annuities, which are becoming pretty popular with older Americans looking to step up their retirement savings. Interest rates on fixed annuities commonly beat those of CDs, and also feature the bonus of investors being allowed to pull out as much as ten percent of their investment without penalty. Of course, nothing this perfect-sounding comes without a price – your initial investment is not insured by the FDIC with a fixed annuity in the way that CD deposits are.

For those who are willing to step out onto the ledge a bit when it comes to financial risk, dividend-paying stocks might just provide an attractive alternative to mainstream CDs. These are the riskiest alternative to CDs, because there is always the chance that stocks can plunge in value. Of course, you can always minimize your risk by choosing to put your money with a company that sports a solid, proven performance record. If you make a good choice, the dividends paid out by these stocks can be reinvested. Of course, you must also go into this kind of investment knowing that companies have the option to stop paying out dividends at any time and without warning.

In the state of Massachusetts, the three biggest banks (Bank of America, Citizens Bank, and Sovereign Bank) have all jacked up their early-withdrawal fees in the past few months. These penalties are so high right now, said the Boston Globe newspaper, that in most cases they would not only wipe out accrued interest, but also eat into the principal initially invested. Experts in the banking field say that they are startled by the severity of these penalties.

The example used in the Globe was of a Bank of America customer with a twelve-month, ten thousand dollar CD. If they withdraw the funds early, they will face three hundred twenty-five dollars in penalties. That’s eighteen times the penalty that customers paid before, and a laughable, exponential difference from the thirty-five dollars in interest that a saver would earn on their money under the current rates. If I were a customer with Bank of America looking to withdraw MY money from a CD because I had an urgent need (which was exactly the boat my family was in when my husband got laid off back in 2009), that would be a pretty nasty surprise.

On one hand, a CD will pay out better rates than plain old savings accounts. On the other hand, these bonds have the downside of requiring customers to leave the money in the bank for predetermined lengths of time, generally ranging from a few months to five years. This is what tends to comeback to bite customers in the rear, because it’s not as if any of us can predict the future and if we will need the money we tuck away into one of these accounts. A few consumer advocacy groups have posited the theory that higher penalties for early withdrawal are the latest effort by banks to find revenues to offset losses from bad loans and the cost of complying with new federal regulations. In other words: thank you again to the CARD Act, which was supposed to protect consumers! This is all part of the same “reforms” that have brought the extinction of free checking, an increase in credit card interest rates, and higher ATM fees. It’s part of a larger initiative from the banks to increase fee income.

Formerly, Bank of America would charge anywhere from three months to one year of interest as a penalty for early withdrawal of funds from a CD bond. Bank of America is the state’s largest bank. Effective in February, however, the bank started to charge a fee of twenty-five dollars, as well as one percent of the withdrawn amount for CDs that mature in less than a year, and three percent for longer-term deposits. According to Bank of America spokesman Anne Pace, not that many customers will ever have to worry about this, since less than one percent of all CDs are closed out early. It’s just not a big concern, she says. Furthermore, Pace said, the penalty didn’t go into effect until after February 14th, and the policy only applied to CDs opened on or after that date. Therefore, customers with CDs in the midst of their term won’t be affected by early withdrawals.

Citizen’s, Massachusetts’ next-largest bank, formerly charged customers for early withdrawals at the rate of between ninety and one hundred eighty days of interest, based on the length of the certificate’s term. Now, the bank charges a flat fee of fifty dollars in addition to a penalty at least as big as the old one. To wit: Citizen’s new penalty is either three months’ worth of interest on the amount withdrawn or half of the remaining interest left to accrue, whichever is greater. For certificates of a year or more, customers will be charged either six months’ worth of interest or half the remaining amount of interest… again, whichever is greater. What does all this babble mean, effectively? Well, a customer who invested ten thousand dollars in a two-year certificate paying one percent interest would pay out one hundred twenty-five dollars in penalties if they withdrew they money after six months, an increase of seventy-five dollars over the old fee schedule.

A Citizens rep, Jim Hughes, claims that the bank advises consumers seeking to break a CD to access cash to try and use money from a different kind of account: savings, or a so-called “breakable CD,” perhaps. This latter item is a bond that permits a single penalty-free withdrawal, though it generally has a higher minimum balance and pays lower rates. He also said the bank uses its discretion to not assess the penalty in certain circumstances, such as when the customer dies or is disabled and needs the money urgently.

As for Sovereign, that bank raised its New England CD penalties last month. On CDs of five years or longer, the bank now charges customers one year’s interest — up from six months under the old rules — for early withdrawal. Early withdrawal penalties for shorter-term CDs will remain at three to six months’ interest. Sovereign also said it expects few customers to be affected because most hold the CDs until they mature. I myself feel like that is probably a line that these banks’ corporate offices like to feed the media to quell the inevitable shouts of outrage over these ludicrous fees, but I’m just a humble blogger and that’s only my opinion!