A Certificates of Deposit, or CD, is a savings vehicle used to earn a higher rate of return on funds that you’re not planning on using for a certain period of time. They provide a way to enjoy higher returns on your money with low risk.
Are CDs a smart investment?
Unlike a typical savings or money market account, the funds are locked into a CD and you are restricted from dipping into the funds. This can really help you resist the urge to use the funds for purposes other than what you originally intended. CDs deposited with banks and credit unions are also typically insured by the FDIC or NCUA up to $250,000 so these are very safe investments.
What kind of things should I use a CD for?
A CD can be a very useful savings tool when planning to purchase a car, down payment on a house, or saving for a vacation, college expenses or retirement.
What are the terms of a CD?
CDs have a fixed length of term, typically ranging from three months to five years. The longer the term, the higher the interest rate or dividend. If you’re saving for college or retirement, you may want to consider a longer term to earn more on your money.
How much interest can I earn on a CD?
The interest or dividend earned on a CD typically varies based on the term of the CD. CDs typically pay a higher interest rate or dividend than standard savings, checking or money market accounts.
Are there any other fees associated with CDs?
There are typically early withdrawal penalties that could cause you to lose part or all of the interest or dividends earned. When deciding whether or not to invest in a CD, make sure you consider when you may need these funds.
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