Banking CD, Things to Know About Investing

By: EconomyWatch Content Team   Date: 3 March 2010

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A banking CD is a relatively straightforward type of investment and savings plan.  You decide the amount you want to invest, as well as the bank you want to use, purchase the CD, and then keep the money locked for the time determined.  During that time, money from the banking CD or accrued interest cannot be withdrawn and if it is, a penalty would apply and interest could be forfeited.  However, while a simple investment, there are some important things to know about a banking CD.

For starters, some people think the money is 100% safe and protected.  In truth, if the banking CD is with a bank, which is an entity of the government, the CD would have FDIC protection in case the bank fails but if the CD is secured with a credit union, FDIC protection is not offered.  In addition, there are specific rules regarding the amount of money insured so it is imperative to know the limit for the bank chosen.  For instance, a banking CD maturing before 12/31/2013 would be safe up to $250,000 but after that, only $100,000.

It is also important to know that every financial institution is unique.  Again, some people think that all banks and credit unions are the same but this is untrue.  For a banking CD, the terms, amount that can be invested, length of the CD before maturity, and the interest rate and APY rate vary.  For this reason, it is critical that you look at what each bank being considered offers and then make comparisons to identify the good from the less than good.

Next, people think that just because interest rates are currently low that there is no money to be made on a banking CD.  Although the amount of money would not be as great if rates were higher, certificates of deposits remain a great investment.  However, to enjoy a nice return on investment, the key is to invest the largest amount of money possible, choose the bank paying the highest interest and APY, and then leaving the money alone for the longest term possible, which would be five or six years.

Finally, it is important to know that you have multiple options for a banking CD.  Certificates of Deposit come in a wide range of options so it is important to work with a reputable bank that can provide you with insight as to the right one for the money you want to invest and your ultimate goal of saving.  As an example, if you have a significant amount of money to invest in a type of banking CD then you would look at Jumbo CDs.

A certificate of deposit such as this is unique.  For this particular banking CD, you would need to deposit a minimum of $1 million.  Although anyone can secure a jumbo CD this investment is usually something in which institutional investors invest.  The good news is that jumbo CD is low risk and the potential for making a lot of money is very real.
 


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