1) Don't assume a CD issuer is federally insured. Ask.
2) Be sure you fully understand the rate and annual percentage yield (APY) that is offered.
3) Be careful when "laddering" your CD purchases over different time periods. The concern comes if you need to access most of your deposit where you will have to pay an early withdrawal penalty.
4) Find out when the CD matures and also find out if the CD will automatically renew at ma-turity if you do not withdraw the money.
5) Investigate any call features. Callable CDs give the issuing bank the right to terminate the CD after a set period of time.
6) Understand the difference between call features and maturity. Don't assume that a "federally insured one-year non-callable" CD matures in one year.
7) Confirm the interest rate you'll receive and how you'll be paid, monthly, quarterly, or annu-ally and if you’ll be paid by check or an electronic transfer of funds. You should receive a disclosure document that tells you the interest rate on your CD and whether the rate is fixed or variable.
8) Ask whether the interest rate ever changes. If you're considering investing in a variable-rate CD, make sure you understand when and how the rate can change.
9) Research any penalties for early withdrawal. Be sure to find out how much you'll have to pay if you cash in your CD before maturity.
10) Find out about any additional features. For example, some CDs offer a death benefit that allows the heirs of the CD owner to redeem the CD without penalty when the owner dies.
Here's the bottom line: Before committing funds, always ask: Does this investment make sense for me? A high-yield, long-term CD with a maturity date of 15 to 20 years may make sense for many younger investors who want to diversify their financial holdings. But it might not make sense for elderly investors.
If you have questions about CDs, ask an officer at your bank.