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Certificate of Deposits

Certificates of Deposits (CD’s) are one of the most common fixed-income investments. It is a type of deposit account that usually entails a lower risk than other types of investments.

CDs also pay higher yields than regular savings accounts, but to earn that, you need to let someone else hold your money for a specific, stated period of time. In other words, the bank is expecting you to keep your money for a certain time and offers you a higher interest rate because of that. The higher your deposit, the better interest you will generally receive.

Let’s take a closer look:

CDs are one of the safest investments you can make and be sure to take advantage of the higher interest rate that they offer. Remember the benefits of compounded interest.

If by chance you need your money sooner than the maturity dates you will incur a substantial penalty for early withdrawal. Since you never know what might happen or which other opportunities may arise, learn about the penalties of redeeming your CD before maturity. Learn how CD Maturities Work.

Shop different banks and check the best CD rate for you. The interest rate paid on CD’s may vary and for example they can be fixed or variable. Check with your bank which interest rate are they offering, and when and how it will be paid. Remember that the longer the maturity of the CD (length of time), the higher the interest rate should be. Be certain to ask questions such as how much of a penalty is involved with early withdrawal, and how serious that will reduce your interest earnings in the end.

Buying CD’s is quick and simple. Simply ask your bank for a CD (you may be required to fill out some form). You will be investing a certain amount of money for a determined period of time (e.g. one year, six months). The Bank issues the CD and at the end of the period when it is time to redeem the value of the CD, you will receive this quantity plus the interest that you gained over that period. As with any investment, be sure to read the fine print and practice due diligence before making an investment decision.

Learn more about CD’s - Definition, Different Types of CDs.

See this Certificate of Deposit Calculator.

Personal Financial Tips

  1. Pay your bills on time.
  2. Eat more at home and less out.
  3. Take your food to work.
  4. Forgo the ice cream store and pop popcorn at home.

More Financial Tips