If you tuned in to see what the top 10 CDs are on the Hit Parade this week, well, I do hope Carrie Underwood is number one, but, really folks, those aren't the kind of CD's I'm here to talk about today. Today, I'm here to talk money — specifically CD money (Certificates of Deposit), not music. You know, CD money is the kind of money you cherish the most — the no-risk, want-a-good-return-kind.

Not many investors know that the CD has been around for centuries. In the very old days, ship captains would entrust money with a "banker" (though they little resembled our present day banker), someone they knew would be good for the money when he got back. The "bankers" would vie for the various captains' money by offering incentives such as whiskey, silk, exotic foods, and, of course, cash.

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Today, the offers are still there (how little things really change), but the rules of the game are very, very different. And they are regulated very, very heavily with the end goal of making them extremely consumer friendly and dependable. Obviously the regs have worked as CDs are used by a huge cross-section of our citizenry. Just about everyone you ask has at sometime or another owned a CD and most will tell you it is a pretty cut and dry investment.

Well, for the most part they are right. All you do is plunk down your money and in 1-2 or more years you get it back with interest. Guaranteed! Period, end of report. But, folks, while it looks simple, many a headache and upset tummy has emerged from all the fine print that governs the owning of CDs. But, that is about par for the course. I don't believe there is ever a time when you give someone your money to keep for awhile, that you can forgo reading all the fine print — and I mean all of it.

Did you know, for instance, that (1) the average bank employee does not know that CDs can be bought at institutions that are NOT banks? (2) Did you know that under some circumstances you can lose PRINCIPAL if you withdraw funds early, not just the interest? (3) Did you know that some CD issuers may require up to 60 days before you can withdraw funds if you are faced with an emergency and need the funds? (4) Or how about this one - for a relatively small additional fee, some issuers will guarantee your funds up to almost any amount you desire? Hmmm. Food for thought.

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Well, lets get into some of the important basic rules for investing in CD's. If you intend on making this type of investment in the future, be sure to print out this portion of our column today and keep it where you can easily find it. It may mean money in you pocket!

1. Amount and Interest Rate. CDs are issued for a specific amount of money for a specified interest rate during the life of the CD. Always, be sure the agreement you make with the bank has these two items clearly defined. Never sign any CD agreement if these are not clearly shown.

2. Compound the Interest. Always be sure the interest is compounded, preferably on a daily basis, that is, interest earned each day is reinvested daily over the life of the CD. This means your interest will also earn more interest during the life of the CD. For example, a $100,000 CD at 5 percent interest rate will earn $5,000 a year, but if compounded daily will earn an additional $125! (Not a fortune, but I will gladly accept your $125 check if you don't really want it!)

3. Shop for the Best Rates Offered. Shop around for the best interest rate you can get. I suggest you check the internet, as well as local issuers, for rate offerings. I have been able to increase my rate by nearly a full 1 percent by checking the website Bankrate.com/CDs. Over a 10-year period, that can mean additional thousands of dollars return to you, depending on the face value, of course. Looked at another way, if most rate offerings are at 4 percent and you can get 4.85 percent, that is an increase of nearly 23 percent in real dollars!! That makes your search very important!!

4. Check That FDIC Insurance Offered. If the amount you are putting into a CD is $100,000 and you are the sole owner of the CD, the U.S. government guarantees that CD up to $100,000. If you have more than this amount, consider making it a joint account with your wife or child or friend and get a guarantee of up to $200,000 per CD. And as of April 2006, the government added a new benefit. If your CD is in an IRA, it is insured by the FDIC (Federal Deposit Insurance Corporation) for up to $250,000. Be sure you see this specified in your agreement. And remember, the larger the face value of your CD and the longer the period of the CD, very often the issuer's rate of return on the CD will be HIGHER. Sometimes, you can even negotiate your rate to higher than the written offer. Check it out!

5. Get A Disclosure Document. Every issuer of CDs, if it is a member of the U.S. government FDIC unit, must supply you with disclosure document describing every facet of the CD BEFORE you purchase the CD. BE SURE YOU GET IT!! Read it carefully. While much of it is lengthy legal-ease aimed at protecting them - not you - the terms and conditions that apply to your CD itself usually cover only several pages out of the booklet. Read these pages carefully. After you have bought the CD, keep this document in a safe place. If you ever need to question any action on the part of the issuer, it will be the only document that will matter if a dispute arises. This is especially important if the original issuer has been bought or merged with another institution. The original terms you made will govern in the event of a dispute.

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Four Other Important Points.

• Be sure that there is no "call" provision. It allows them to close out your CD before it matures if the interest rate of your CD (say 2 years later) is above the general rates being offered at that time.

• Be sure that there is NO provision that will automatically renew your CD. It should be your right to decide if you want to renew — and only yours. If they want an automatic renewal that says if you don't specify what you want done by a specific number of days after the CDs maturity, go to some other institution to buy your CD. And be sure they are required to give you written notice several weeks before the CD does mature.

• Be sure to see exactly what ALL the fees might be if it might become necessary to withdraw the CD early. Loss of interest should be the ONLY fee. If they charge a fee on top of this, again, go somewhere else to buy your CD.

• Be sure your interest starts the day your deposit, not the next week, 10 days after the deposit or the first of the next month!

Well, that is about all for today. I trust that the above will help you maximize your returns on CD investments. Oh yes, almost forgot. Remember the four questions at the front of this column, the "did you know" ones? Well, here are the quick answers to each one.

Yes, you can buy CD's from any one willing to offer a CD. Some CD issuers, brokers for example, may offer private insurance company guarantees on funds. This is usually OK, but be sure the insurance company is very sound if you ever go this route. The U. S. Government only guarantees FDIC members CD's.

Yes, you can lose some principal if you withdraw early. If you have a six month penalty for early withdrawal (the standard usually used) and you must withdraw in month 3, you will be charged 6 months interest as a fee to withdraw, but will only have earned 3 months interest. The balance to pay the 6-month fee will come out of the PRINCIPAL.

While the majority of issuers allow immediate access to funds if you must withdraw early, there is no requirement to do so. Some issuers do put a time period on when you can get access to funds. Check this out carefully before you buy your CD.

Yes, it is true that you can get principal guarantee for almost any amount (if the issuer offers this service). The fee you pay is for insurance premiums. Check this out if it would give you a more sound sleep at night to have the uninsured portion of your CD guaranteed. Well, that 's about it for this week. Hope your coming investment week is a good one. In the meantime, you keep in touch. I do. See you next week.

© NewsMax 2007. All rights reserved.

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