Certificate of Deposit (CD) Basics

"Never be frightened to take a profit. Better in your pocket then theirs." -Michael Levy

Certificate of deposits are great ways to save money and make a little profit from interest. Many financial advisors will suggest certificate of deposits as an alternative to a traditional savings accounts. Certificates of deposits (CDs) can be purchased from a brokerage firm, credit union, bank, or savings and loan institution. When purchasing a CD you are agreeing to leave a set amount of money with the bank for a set period of time. In return, the financial institution will pay you interest on that money and when the CD matures you will get your initial money back and small profit. There are many different types of certificates of deposits. Below is some basic information about CDs and some guidelines for choosing the right investment.

A key factor in determining which CD is right for you is the minimum deposit required to open up a CD. To receive the banks increased interest rate you must deposit at least the minimum deposit amount into the account. While most lending institutions offer affordable CDs for the average consumer, there are organizations which require thousands of dollars to open up a CD. Make sure you shop around and find a minimum deposit amount that works for you.

Another factor which can influence your CD choice is maturity length. Maturity length refers to how long you will have to keep your money in the CD. Maturity length can vary from just one month through 48 months. Many banks offer flexible maturity lengths. This allows the investor to open a CD at a maturity length of one month and then decide, after that month has past, to keep it in the CD for an additional length of time. The longer the maturity period the more profit you are going to receive from the account. However, if you need to access that money early you will have to pay early withdrawal fees which can be fairly pricey. The interest paid on a CD can also vary. Be sure to ask your savings institution when interest will be applied. It can be compounded yearly, twice a year, four times a year, monthly, and even every day.

There are also several ways you will receive your interest payments. You have it deposited directly into your CD account and it will continue to receive interest like the rest of your CD. You can have the interest payment mailed to your home or deposited into a checking or savings account. Certificate of deposits are great options for people looking for a stable and consistent rate of growth on their money. The main concern with CDs is liquidity. If you are interested in opening up a CD account speak with your local bank or contact a financial advisor.

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