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nortonrsx/Getty Images June 08, 2022 René Bennett is a writer for Bankrate, reporting on banking products and personal finance. David Schepp is a wealth editor for Bankrate, focusing on deposits and consumer banking content. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’re aiming to avoid risk while earning a return, (CDs) are a good consideration. Traditional CDs offer a guaranteed rate of return, but they come with one requirement: Money can’t be withdrawn from the CD until its maturity date. One type of alternative CD, however, is a callable CD, which can be closed by the issuer before its maturity date and often feature above-average interest rates. Callable CDs have disadvantages, too, so it’s important to understand how they work. What is a callable CD
The bank or brokerage firm that offers the callable CD can call or redeem the CD earlier than its maturity date. Customers who invest in a callable CD are most at risk of the bank taking back the CD early if interest rates suddenly drop. The CD is less likely to be called if interest rates go up. If your CD is redeemed before it reaches maturity, you will still receive your full principal and the interest it has earned up to that point. However, you won’t earn all the interest you initially planned for and will have to reinvest somewhere else — potentially at a lower rate. The callable feature can only be enacted by the issuer. In other words, if you invest money in a callable CD, you are unable to access the funds early without incurring an early withdrawal penalty. Callable CDs are less common than traditional CDs and may be harder to come by. How callable CDs work
Callable CDs work like most other CDs. They can be opened at a financial institution or brokerage firm, and you deposit money into them for a specified period of time. As a customer, you wait until the to withdraw or renew it, or until the issuer calls the CD early. Example
You decide to deposit $15,000 in a four-year callable CD that earns interest at 3 percent. With your earning power, you should have more than $1,882 of earnings at the end of the term. After two years, however, the issuer decides to use its call feature. You’ll get back your principal, plus $913.50 worth of interest earnings, but you’ll need to find another investing option. Maturity date vs callable date
The maturity date is when the certificate of deposit reaches the end of its term. For example, a four-year certificate of deposit opened on July 1, 2022 will mature on July 1, 2026. Callable CDs come in a wide range of terms — as long as 20 years. The callable date refers to the date when the issuer has the right to close out a CD earlier than its maturity date. There is typically a noncall period, which prevents the issuer from calling too early (typically six months to five years). Make sure you inquire about the callable date If you’re thinking about opening a callable CD ask about the callable date, so you understand when the issuer can decide that time’s up. Where to open a callable CD
Callable CDs are offered through some banks and brokerage firms, although callable CDs are not advertised at many of the major national banks. Make sure that the issuer is insured by the . Since there is always the possibility that you will need to withdraw cash before the CD matures, check to see what kind of early withdrawal fees the issuer charges. Pros and cons of callable CDs
Pros
Higher interest rates: Rates on callable CDs are typically higher than the yields paid on . Fixed interest rates: Like traditional CDs, callable CDs pay fixed interest rates, which means that the CD’s rate isn’t affected by market changes. Fixed rates also mean, however, that a CD’s rate can’t increase, even when the . Principal is protected: Even if the issuer redeems the CD early, you won’t lose any of the original investment, thanks to FDIC insurance. Cons
Not a guaranteed term: With callable CDs, you will have to plan for the possibility that it might be called earlier than the maturity date and find a different investment for that money. Requires more investment strategy: If the issuer calls your CD, interest rates have likely declined, which means you’re going to struggle to find similar earning potential. For example, if a 10-year CD is called four years into the term, you’d need to figure out how to make up for those earnings for the six years lost. Potential early withdrawal penalty: You will likely have to pay a penalty if you take money from the account before the CD’s maturity date. Bottom line
Callable CDs may be a good option for low-risk investors that are looking to earn higher returns on a CD. There is a chance the CD will be redeemed before it reaches maturity, but you won’t risk losing your original investment. There are other alternative CD types to explore, as well, such as , which allow you to withdraw the money early without paying a fee. –Freelance writer David McMillin contributed to a previous version of this article. SHARE: René Bennett is a writer for Bankrate, reporting on banking products and personal finance. David Schepp is a wealth editor for Bankrate, focusing on deposits and consumer banking content. Related Articles