What is a CD?

CD is a common abbreviation for a Certificate of Deposit. CDs are one of many investment products offered by banks however it is one of the simplest to understand. Banks offer CDs to customers to guarantee a specific interest rate or APY for the customer for a certain deposit amount.

CD INTEREST RATES
CD interest rates are typically higher than ordinary savings accounts but lower than mutual funds. This is because if you have a CD with a bank that is FDIC insured then your investment is guaranteed up to $100,000. As long as you go with a FDIC insured bank then there isn’t really any risk of losing your money. CD rates fluctuate with the market but they’re locked in for the term the day that you open the account. It’s always good to look around and compare CD interest rates when you’re ready to make this investment.

SAVINGS VS CDS

• Savings accounts allow you to withdraw and deposit at any time. CDs do not allow you to add money into the CD during the term.
• You can end your CD early but with a penalty. This penalty can often be MORE THAN THE INTEREST YOU WOULD GAIN by keeping the CD to full term. (You can take a loss because of the penalties associated with early withdrawal.)
• Savings account interest rates fluctuate with the market and are subject to change at any time. CD interest rates are locked in for the period of time stated when the CD is opened.

WHAT KIND OF ACCOUNT SHOULD I OPEN
You can open both an online savings account and CD accounts. Online savings will allow you the flexibility of moving money back and forth without penalties while the CDs can net you more money in the long term. CDs are offered by banks to customers that can part with their money for preset lengths of time from 3 months to 10 years. If you are in a situation where you may need your money soon then this may not be the time for you to open a CD.

INTEREST DISBURSEMENTS
If given the option to receive interest disbursements with your CDs then always say YES. That way you can put the interest to work in your savings account and enjoy the power of compounding interest rates.