What Are Certificates Of Deposit?
Certificates of deposit, or CDs, range from time-deposit savings certificates, accessible in small denominations at banks, savings and loan associations, and credit unions, to negotiable certificates, which require minimum deposits of $100,000 or more.
A certificate of deposit (CD) provides a guaranteed rate of return on your money, allowing you to grow your investments with little work and risk. These risk-free investment choices may be advantageous for those seeking a fixed, predictable rate of return on their investments. However, you should know a few things before creating a CD account.
What is it?
A CD is a type of savings account that holds a fixed amount of money for a set time, ranging from three months to five years. CD accounts often offer higher interest rates than conventional savings accounts, but there is a catch. If you withdraw your money before the CD's maturity date, you will be charged a fee, offsetting any income you may have earned (unless you have a no-penalty CD account).
Before you open a CD, examine interest rates, early withdrawal penalties, and any other associated expenses. Some accounts have minimum deposit and balance requirements that must be satisfied, or a fee may be assessed.
Why open one?
Avoid putting your emergency fund or any other savings you may need to access into a CD account because your money is locked away for a set length of time. CDs are fantastic solutions for specific savings goals, such as future purchases or events.
Saving your money in a CD account is one way to receive a fixed, predictable rate of return on your funds if you're seeking a risk-free investment choice. CDs are one of the most secure methods to save money since they are FDIC or NCUA insured. This means your deposits will be safe (up to $250,000 per account) even if your bank goes bankrupt or closes.
