Are you looking for a safe method to expand your savings? Look no further than certificates of deposit (CDs). Here’s a short guide on CDs, their types, and benefits:
What is a Certificate of Deposit (CD)
A certificate of deposit, commonly known as a CD, is a savings account that pays interest on a fixed amount over a fixed period of time, such as three months, one year, five or ten years. When the savings period ends, the bank pays back your original amount plus any interest. If you withdraw your money early, you will be charged a small fee.
CDs are insured by the Federal Deposit Insurance Corporation, which makes an incredibly safe and consistent investment method. Consider the following aspects when choosing a CD:
- Your financial goals.
- Interest rates.
- CD type.
- Term length.
- Withdrawal penalties.
Whether you’re opening a CD account in a bank or with a broker, make sure you inquire about any additional terms and conditions.
Types of CDs
Depending on your bank or investment broker, you can have access to various types of CDs. This includes:
No-penalty CD: Also known as a liquid CD, a non-penalty CD allows you to withdraw money without being charged a fee. It can help you yield higher returns than other savings accounts. The access time can vary depending on the amount.
High-yield CD: Provided by online banks and credit unions, a high-yield CD offers higher-than-average interest rates. However, it can’t be withdrawn without a hefty penalty.
Brokered CD: As the name indicates, this certificate of deposit is offered by a broker or brokerage firm.
Knowing the different types of CDs can help you reevaluate your investment goals and choose the best option.
Why Choose a Certificate of Deposit
Here are five reasons you should consider investing in a certificate of deposit (CD):
Low-Risk Investment
Compared to volatile investment options like stocks or bonds, CDs are low-risk. Your funds are federally secured up to $250,000. Therefore, even if the bank faces bankruptcy, your original capital won’t decrease.
Resistance to Market Fluctuations
The most important benefit of a CD account is its immunity to market fluctuations or economic downturns. Your money will remain secure, and your interest is guaranteed in all cases.
High Interest Rates
CDs offer considerably higher interest rates than other savings accounts. As a result, your money will grow faster over time.
Predictable Returns
With a certificate of deposit, you can enjoy reliable growth with fixed interest rates. If you’re saving for a specific goal, such as a car or a house, opening a CD account can be a wise decision. You will know exactly how much you’ll earn by the time the CD matures. You can meet financial goals without the hassle of uncertainty.
Term Flexibility
Unlike other investment sources, CDs give you the freedom to choose a timeline that suits your goals. CDs often start from three months and can be operated for up to ten years.