Bank Certificates of Deposits for the High Yield Investor

by David Jenyns on February 4, 2008

Bank time deposits (Certificates of deposits) are some of the highest yielding government guaranteed investments available today.

In general there are three types of bank deposits: checking accounts, savings accounts and bank certificates of deposits. The rate of interest you receive on bank certificates of deposits is presently between 4.7 percent per annum and 6 percent. Banks pay you up to 3 percent on bank certificates of deposits, sometimes less.


* How then is the rate of 4.7 percent to 6 percent possible?

* A typical rate structure is 2 percent on deposits left in the bank from 30 to 89 days, 2.5 percent on deposits from 90 days to six months and 3 percent on deposits over six months.

When business organizations borrow from banks they are usually required to keep deposits in the bank. Six thousand dollars on $80,000 is the real interest rate paid by the corporation—7.5 percent. Sometimes the business organization is paid interest by the bank up to 3 percent on the compensating balance, sometimes not.

Now, since the bank pays me 3 percent on these time deposits you pay me another 2 percent.

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