Hunting the Elusive High-Yield Interest Rate

FinanceTrading / Investing

  • Author Caterina Christakos
  • Published October 20, 2010
  • Word count 510

For anyone who hasn't taken a bazillion classes in economics, interest rates can be deceptive. They seem simple at first: You get a quote from a bank on an interest rate for a savings account, or you hear about certain types of bonds with annual percentage yields, and you may assume that that's the end of the story-that you enter into a relationship with that company based on the given rate, and that that rate is set in stone.

But in fact, when it comes to both high-yield interest rates and modest ones, even the simplest transactions are not without fine print, and investors who rush into transactions without knowing the deal inside and out often get burned. Rates change, bonds come with hitches, and banks may have buried policies that allow them to raise or lower rates practically at will.

To make things even more complicated, the rise of online banking over the last decade has introduced a slew of new firms and investment opportunities, some of which are great, but most of which are risky at best. We all know that not everything on the internet is on the up and up, and this is painfully true when it comes to banking and investment.

As a result, a smart investor approaches a high-yield interest rate with caution, understanding that deals are not always all they pretend to be. So, when looking for a high-yield interest rate for your investment, be sure to keep these things in mind.

  1. Go with institutions that have good reputations: When faced with a high-yield interest rate offer from a company that you've never heard of before, be very careful. It might be a legitimate company, but you won't know until you do some research. Ask around and do some web investigation to find out about the company, and if you can't uncover any information on them, don't make that transaction.

  2. Understand all the policies: Before getting involved with a bank or bond that offers a high-yield interest rate, be sure to understand everything that you're getting yourself into. Read all the relevant documentation and policies to make sure that you're not going to be surprised by anything down the line. Confirm that you will have access to your funds when you want them, and that withdrawal does not have an unacceptable lag time.

  3. Make sure the company is secure: Obviously, it's not a good idea to buy bonds from companies that are doomed to fail in the near future. Before buying a bond with a high-yield interest rate, learn everything you can about the company, and if anything seems fishy, don't buy from them.

  4. Don't trust past results: Even when everything about a bank's or company's past seems to suggest that you should buy from them, it's important to remember one of the essential tenets of smart investing: Past performance does not always indicate future results. Especially in tough economic times, you have to consider the current condition of a company or investment. Past results matter, but they're not a basis for action.

Caterina Christakos is a published author and reviewer. Learn how to locate the elusive high yield mutual fund by reading her high yield investment reviews.

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