Investment CD, The Benefits

By: EconomyWatch Content Team   Date: 24 February 2010

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EconomyWatch Content Team

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Instead of earning very little money with a standard savings account, more and more people are enjoying the benefits that come from an investment CD or Certificate of Deposit.  When you begin your search for the best CD, you want to understand the amount of money required for getting started in that some banks and credit unions have a minimum requirement.  Usually, it takes $1,000 to open an investment CD but for some, the minimum would be $10,000.

You will also need to think about the amount of time you want the investment CD to be locked.  If the Certificate of Deposit were locked for one year, it means the CD would mature at one year.  During that time, the interest rate associated with the investment CD would accrue so once the maturity is reached, you would have a nice return on investment.  Typically, the longer the CD is locked the better because this allows more time for interest to build.

However, you need to remember that during that one-year period, you could see interest go up to earn more money for you but you could also see it drop.  For this reason, it is so important to purchase any investment CD from a reputable bank, one that can provide you with advice and guidance.  In addition, it would be beneficial to watch the market so you can make educated choices instead of guessing.  As an example, if interest rates have been fluctuating but you still want an investment CD, rather than lock in for a long period, go with six months.

Another important aspect of choosing an investment CD is that when looking at different banks make sure they offer FDIC insurance.  Because banks are government entities, they are mandated to provide protection up to $100,000.  Therefore, if your regular savings account or investment CD were to exceed that amount, you would need to set up a second savings account or roll money over to another CD.  This protection is designed to keep your investments safe in case the bank were to face financial disaster.

Keep in mind that you can purchase an investment CD from a credit union but there are good and bad factors involved.  In this case, credit unions will sometimes offer the best Certificates of Deposit and the best interest rates but the downside is that because credit unions are not a part of the government, they do not provide FDIC insurance.  Therefore, any CD purchased from a credit union should be minimal and for a short amount of time, just in case.

You also need to remember that once you purchase the investment CD, whatever amount of time is chosen for the money to be locked, you would not have access.  If you were to take out any or all of the money from the investment CD prior to the maturity date, in addition to being charged a hefty penalty, you would also lose any of the interest earned.  Therefore, you need to leave the money alone during the maturing period so it can do what it was designed to do – accrue interest and build up money for your enjoyment.


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