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Make sure your excess money is earning as high a rate of return as possible. Certificates of Deposit offer you a low risk and safe way to improve your investment earnings.
A Certificate of Deposit (CD) is a Federal Deposit Insurance Corporation (FDIC) insured time deposit issued by banks and brokerage firms across the country. Technically, a CD is a promissory note the issuing bank delivers to you. You are essentially loaning your money to a bank that will, in turn, repay you with interest at the end of the term.
CD's generally carry a fixed rate of interest and are very easy to open. In most cases, you can open a CD with as little as $500. The higher the amount of your deposit, the higher the rate of return.
CD's are relatively safe investments; therefore, the rate of return may not be as aggressive as other investment accounts. Generally, the longer the term you select, the higher the rate of return. CD's are available in terms as short as seven days and as long as several years. The most common are three-, six- or twelve-months, and three- or five-years. You should bear in mind you will have to pay a penalty for early withdrawal from a CD. See the FDIC article Certificates of Deposit: Tips for Savers.
Take a look at some of the benefits offered by CD's:
Evaluate both sides of the coin before you decide to purchase a CD:
The marketplace has recently added some unique CD products worth investigating. Many banks are now offering a variety of CD's that provide more flexibility than the more traditional CD:
CD's can be a good investment choice. Some investors like to use an investment strategy called "laddering". This means you buy multiple CD's with varying terms so that all of your funds are not tied up at once. For example, to start out, you can buy one CD with a term of three months, and one with a term of six months. When the first one matures, you can either use the money if you need it or reinvest it in a six-month CD. Make sense? This way you will always have access to at least some of your money without having to pay a penalty.
If you currently have an adequate amount of savings available to you, consult several banks to investigate the type of CD's offered. And, be sure to evaluate all of your savings options carefully before making an investment decision. For information on savings and other investing strategies, read the related Knowledge Center Articles.
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