Mortgage Companies Now Offering Great Rates on CDs and Savings

Since the advent of ING Direct and other online banks, interest rates available to consumers in savings accounts and certificates of deposit have gone up dramatically. Many of the major banks have been lowering their rates on CDs and savings, leaving room for smaller banks to outcompete the larger banks on interest rates. There's now another group of companies getting into the online certificate of deposit and online savings markets, mortgage lenders. You can now quite easily get interest rates on CDs as high as 5.5% from mortgage lenders online.

The reason mortgage lenders are getting into the online savings business is because it provides them additional cash-flow to provide loans with. They might borrow money at 5% from people who purchase CDs and savings accounts and lend them out at 7% or 8% in the form of a mortgage. Since the real estate industry is in a bit of a crunch right now, mortgage companies have had some trouble acquiring the cash necessary to create new loans with. Many companies realized they could get the money they needed to create new mortgages with by offering certificates of deposit and savings accounts at great interest rates to consumers.

There is a little bit of risk involved when you invest your savings with a mortgage lender. Many of us remember the savings and loan crisis in which a number of banks failed and the FDIC had to make $50 billion worth of savings up to consumers. Since the real estate industry isn't doing so hot in the United States right now, many of these companies could fail and the FDIC would have to make up the savings that consumers place with these mortgage companies.

You can protect yourself by not putting any more than $90,000 into a CD through a mortgage lender. Make sure that the CDs are FDIC insured up to $100,000 and your money will always be protected. By limiting yourself to investing $90,000 into a CD, you are protecting the principal you earn as well as the interest. If you invested $100,000 into a CD, you would have your principal protected, but lose any interest that you might earn if the bank goes under.

You can find these great new rates through either through advertisements in your local newspaper or online at BankRate.com. If you have a significant amount of money to invest in relatively secure accounts such as CDs, you might want to consider laddering your CDs, which simply means putting your money into multiple CD's that mature at different periods of time. You'll put some of it in one year, five year, and ten year CD's, so that you are protected from interest rate fluctuations. Your money will be more spread out and you'll avoid a significant amount of risk.