Dear Answer Man, why does a bank, such as Think, offer both a 12-month and a one-year CD? In my experience, both options advertise the same interest rate, though one is paid monthly and the other is paid quarterly, and they have the same early withdrawal penalty. — Certifiably Dumbfounded in Rochester
You've answered your own question, my friend, which I appreciate on a weekend when I deserve a day of rest. I called Think Mutual Bank in Rochester and the helpful customer service rep said the only difference is in how the interest is paid out. The interest is doled out quarterly on the 12-month plan and annually (not monthly, as the question suggests) for the one-year certificate. There's no difference in interest rate or penalties for early withdrawal, she said.
Now, I'm no financial genius, but I would assume taking your interest quarterly reduces the overall compounding of value. For some people, on certificates bigger than I'll ever own, that quarterly payout is worth the expense.
There are a million varieties of CDs and every bank is different. Check out all the options before you lock up your money because, as mentioned, there's a penalty if you need it back before maturity.
