Investing in a Certificate of Deposit

An investment in a certificate of deposits is risk-free and can be cashed in at any time. Certificate of Deposits are time deposit accounts with a bank, a thrift, credit union or some other type of financial institution. CD rates are higher than traditional savings account rates because your money is locked up in a timed deposit. Finding the best CD rates online these days is easy with comparision shopping sites.

Certificate of Deposit

Bank certificate of deposits and other savings deposits are also federally insured by the Federal Deposit Insurance Corporation for up to $250,000. A certain dollar amount is invested and your money is also invested for a fixed amount of time, usually one month to five years but some banks offer CDs with a longer period of time.

For lending the bank your money, you are paid interest at regular periods. Usually, the longer the certifcate maturity date, the higher the CD rate you receive. Cashing in your certificate of deposit before it matures will cost you an early withdrawal penalty, usually 3 months of interest but the penalty can be as much as one year’s worth of interest on longer term certificates.

With a brokered certificate of deposit you will have to try to sell it in an open market which won’t guarantee you get the price you paid. Therefore, it is best to be sure you don’t need access to the money before the certificate matures.

Certificate of Deposits have become more complicated these days, you can now invest in variable rate CDs, jumbo CDs and long term CDs. Banks can sometimes also call a certificate, meaning the bank may choose to terminate the CD if interest rates fall and you have locked in a higher rate, so also be sure to find out if your certificate is callable. Find out if there are any early withdrawal penalties or if you have to forfeit all of the interest you earned.