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What Fees Are Associated with Certificate of Deposits?

Even though Certificates of Deposits or CDs are great investments, you might need to pay large fees during certain conditions. When investors hire brokers to manage their CDs, or investors withdraw their deposits prior to maturity, the bank might charge large fees. Depositors should understand these fees before making any purchase. The main purpose of a CD is to gain higher interest within a specific time. Thus, it is important that your account will not be charged with any types of fees.

However, there are still instances when you need the cash from the CD. There are two common fees associated with Certificate of Deposits.

1. Early withdrawal fees

These fees pertain to charges that you need to pay when you want to withdraw your deposit before maturation date. Specific terms discussing about early withdrawal fees should be understood when the CDs are opened. The detailed information on this must also be included in the fine print that you need to sign during investment of the CDs. There are instances that the fees would include credited or non-credited interest. You might need to pay a part of the principal investment to cover non-credited interest if the bank or financial firm would charge such fees. Early withdrawal fees vary depending on the regulations stipulated by the financial firm. Common terms include interest accrued by the principal investment, 3 to 6 months interest on CD terms for 2 years or above, 10 percent of the cash withdrawn, 50 % of the interest accrued or fixed rate charges added to a portion of the interest accrued.

It is important that you discuss these fees with the representative from the bank before you open CD accounts. Large financial firms might charge smaller fees because of the surge of clients. Smaller firms with many new clients might have charge smaller fees too. You can also negotiate these fees in some instances - particularly if you are purchasing CDs from personal banks.

How to avoid CD withdrawal fees?

You can look for banks offering no withdrawal fees for CDs. Normally banks offer this privilege to their long time clients who have millions of deposits that help them gain more profit. You can inquire how to eliminate withdrawal fees using this feature.

If not needed, you should not withdraw deposits before maturity. You can also avoid paying withdrawal fees if you would consider the maturity date of your deposits. Large fees can be charged to the principal amount and the interest you have already earned for withdrawing money prior to maturity.

Purchase CDs that allow bump up rates. Aside from avoiding large withdrawal fees, you can also benefit from interest rate if you would choose this option with more flexible terms.

2. Broker Fees

These fees are charged by financial advisors and brokers that process the investment. The main reason why your brokers charge fees is because they can help you to look for great terms on CDs from various banks. Broker fees vary. Most brokers are part of a large brokerage firm so they might offer you flexible yet higher rates. On the other hand, freelance brokers could provide you smaller fees. You should understand the fees you need to pay your broker if you don't have time to process the purchase of your CDs personally.

How to avoid large broker fees?

Always negotiate broker fees with your financial advisors. These fees are more flexible for freelance brokers. However, brokerage firms can also waive these fees or offer a reduction if you have been a long time client and you are making large investments with certain terms.

Try to do research instead of hiring brokers. You can discard away the fees by personally looking for your own CDs that you can purchase. There are also online resources that can help you find various CDs from different banks and financial firms that you can compare and review to find the best rates and terms.

In purchasing Certificates of Deposit, you must be ready to pay certain fees to withdraw funds prior to maturity or when you hire the services of a broker to manage your account. However, these fees can be avoided by taking certain precautions before investing in CDs.

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