Some banks today are starting to add a little twist when investing in CD’s. It’s called a CD auction. It’s a unique concept but before you read any further, please make sure that the bank is offering a FDIC insured CD because you will find that some of the banks online will not have insurance associated with these auctions.

One of the major banks online that are offering these services is Zions bank. This bank is known throughout the online community for their high money market rates that tend to stay in the top ten weekly.

The auction process will require that you register. This is how the bank will receive all of your information in case you do win. This also prevents people from putting in fraudulent bids. If you’re already a member of the particular bank, the registration process will be easier. If you’re not apart of the bank, they will require most information that banks require when signing up for a new account such as your name, address, phone number, etc.

How the process works

If you log into the bank’s website, you will see an auction calendar. Let’s take Zion’s website for example which can be found here, auctions.zionsdirect.com. Each auction is based on the length of the CD. They vary anywhere from 1 month to 5 years.

Each auction is designed like Ebay in a way. It will have a start and end date. Next you will notice information relating to the CD.

With these auctions, you will have to bid on “coupons’. Each coupon will entail a certain amount. This amount is usually $1,000. When you bid, you will be able to state how many you would like to bid on along with your price or you may bid on the yield.

Let’s take this example below to show you how it would work.

Principal Offered: $200,000
Denomination: $1,000
Coupon: 5.25%

This would mean that there are 200 coupons available to bid on. On the auction, you will be able to see how many people have bid on this product. If there are more than 200 bidders, the market will be more competitive.

Now, let’s say you want to bid $970 for one coupon worth $1,000. There will be a minimum stated also. This means you can’t bid a penny on a $1,000 CD. If this were the case, the banks would lose money. The fact is also that these auctions aren’t popular yet, so you will notice that some may not sell out all the way.

If you were to say bid $970 as mentioned above, this means that you would only have to pay that much for a $1,000 coupon. This would be an extra $30 on your investment!

These CD auctions are fairly new and these are just the cliff notes to the auctions. Depending on what bank you want to go through for a particular auction, make sure you read the terms and conditions to find out exactly how they work because they all vary. If you use these auctions right, you can make some extra money on your investment!