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Name Your Rate On A CD

If you're shopping for a certificate of deposit that lets YOU set the rates, let the bidding began.

USABanc.com, formerly USABancShares in Philadelphia, has linked with CDenergy.com to allow CD shoppers to participate in online bidding for CDs that pay higher than national averages.

Why bother to take the time to register, bid and hope for a better rate than what your local bank or credit union is offering? There's really nothing to lose and much to gain if you get the CD at the rate you wanted, say some financial advisors.

Although the bankrate.com national average on a 1-year CD is 5.03 percent, bids to the online site have been coming in as high as 9.7 percent and the site is gaining in popularity, says Daniel Taylor, director of USABanc.com's electric banking division.

"I think consumers enjoy the ability to set their own price, and we're working to make the whole process even more exciting and efficient," Taylor says.

Here's how the bidding process works:

  • Participants have to register at CDenergy.com in order to participate.
  • The auction begins each day at noon at a rate of 10 percent.
  • Instead of bidding prices up, like at a regular auction, CD auction participants bid down by offering to accept a lower interest rate on their deposits.
  • The deadline for bids is noon ET the next day.
  • Participants can submit as many bids as they want by the deadline but must wait until someone else submits a bid before upping (or actually, lowering) the ante.

When the auction closes at noon the next day, the winner gets the CD at the rate he bid plus a bonus of 10 basis points (0.1 percent) for a CD of $1,000 to $10,000. The yield is a percentage rate that reflects the total amount of interest paid on an account, based on the interest rate and how often it compounds during a 365-day period.

Winning bidders are notified via email and can decline the offer. The next 5 percent of bidders also are offered CDs at the winning rate -- up to a maximum of 100 total runner-ups.

The winner must complete an online application that will be processed by USABanc.com. If the bank doesn't receive payment for the CD within five business days after the auction, that bidder's application is rejected. The CD starts earning interest once the winner has submitted his payment and the application has been approved.

Each day, CDenergy offers a different CD to bid on: Monday: 12-month CD; Tuesday: 18-month; Wednesday: 6-month; Thursday: 30-month; Friday: 36-month; Saturday: 48-month, and Sunday: 24-month.

So is this as good it sounds? Although bidding starts at nearly double the national average rate on most CDs, winning bidders do just a little better than average. When the first online CD auction was held back in April, the winner got a 12-month CD yielding 5.724 percent. More than 2,500 shoppers participated.

More recently, a 2-year CD was "sold" on Sunday at a rate of 6.50 percent. That's compard to the bankrate.com national average rate of 5.28.

"Anytime you're involved in an auction system where rates or prices for an item can go either way, you have some leverage, but be sure of the rules up front," advises Fritz Elmendorf, vice president of communications at the Consumer Bankers Association, a banking trade group in Arlington, Va.

As with any online auction, consumers should know where an individual or business is physically located. In this case, USABanc.com is located in Philadelphia.

Winners have the option of paying for the CD by check through regular mail or through a wire transfer. But experts advise paying for the CD with a credit card if possible. This way, you can dispute the charges if the terms of the CD were misrepresented or never are opened.

Finally, be careful when sending financial information online. Your browser software can tell you whether the business you're dealing with uses encryption to scramble the information so it can't be deciphered by anyone else.

WRitten By Michelle Samaad, bankrate.com

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