Bank term deposits, also known as certificates of deposit, are a form of debt instrument that involve a depositor loaning money to a financial institution for a specified period of time. The depositor receives a return of principal as well as interest at the end of the term. Some banks allow account holders to draw interest from bank term deposits on a monthly or annual basis during the contract term. Generally, banks impose early withdrawal penalties on people who access funds prior to maturity. Savvy investors seek out the best bank term deposit rates by considering things such as the indexes upon which the rates are based, the length of the term, the amount of the deposit and the possibility of making a deposit with a financially troubled institution in order to receive a better rate.
People attempting to find the best bank term deposit rates must first gain an understanding of the factors that drive interest rates. Most term deposit accounts are priced in relation to an index, such as the prime rate in the United States or the London Interbank Offered Rates (LIBOR) in England. In low-rate environments, people can look for banks that use more favorable indexes.
When looking for the best bank term rates, it is important to be flexible about term times. Some banks offer higher rates on unconventional term times, such as 11-month or 13-month products. Many people find that they get the best bank term deposit rates at the financial institution that houses their checking account. Banks sometimes offer bumped-up rates to long-term customers or people who have substantial existing relationships with the bank. Anyone seeking the highest possible rate should emphasize the length of their banking relationship when inquiring about rates.
People also tend to get higher rates by making larger deposit amounts. Some banks agree to match special term deposit rates offered by competitors. Normally, depositors are required to produce a newspaper advertisement or a competitor's marketing flyer if they want to request a rate hike.
Financial institutions that are enduring financial problems often have the highest bank term deposit rates, because these institutions need to raise funds to continue operations but are not deemed as credit-worthy by other financial institutions. Consumers can find the interest rates offered by banks listed in local newspapers or on bank websites. Anyone who makes a deposit at a financially troubled firm obviously assumes a degree of risk, because not all bank deposits are insured by the government.