CD Money, Is This Investment Right For You

By: EconomyWatch Content Team   Date: 24 February 2010

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When it comes to CD money, the amount you put into the certificate of deposit to start it is up to you. In most instances the deposit starts at around $2,000. The term for the CD can be anywhere from six months to up to five years. Some financial institutions allow you to take out a CD for as short a period as three months. While you will earn more interest with a certificate of deposit than you will with a savings account, you will not earn as much as you would if you had chosen other investment options such as mutual funds, stocks or bonds.

There are advantages to CD money when you choose this form of an investment. CDs can be bought from your local bank, your credit union or most any financial institution in your city or town. What this gives you is versatility. You are able to look around to find the best interest rates and you can also choose the time line for your certificate of deposit as long as it fulfills the guidelines set down by the bank.

Speaking of timing, you are granted the opportunity to invest in a certificate of deposit that will mature in six months or five years (or any time in between).You may find in your search that there are some banks that offer 10 year CDs but choosing such a long duration is not wise. The reason for this is because CD rates are closely tied into interest rates. The latter can fluctuate tremendously.

You will earn CD money in the form of interest. It may be compounded on an annual basis or a daily basis. This all depends on which financial institution you purchase the CD from. The length of time you are willing to keep your money in a CD is relevant to how much interest it will earn you. Remember this as a rule of thumb when it comes to certificate of deposits- the longer time line you commit your money to the higher an interest rate will you be paid.

If you make the decision to cash out a CD before it has reached the point of full maturity then you will incur a penalty in the form of extra fees. In most cases you will be penalized up to what works out to be a full month’s worth of CD money interest for withdrawing the money earlier than originally agreed-upon. Some financial groups have even stiffer penalties. If you have reason to believe that you might need to remove your money before the CD has had time to mature then it is best to choose a shorter time period.  
 


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