Certificate of Deposit (CD) is a type of deposit account offered by banks with a set term, whereby you can earn interest on the money invested. The term can run anywhere from three months to 10 years or more.
How are CDs a good investment option for you?
For starters, in most cases, the minimum amount required to open a CD is $1,000 — which makes it a relatively low investment option to get into. CDs are designed to increase your savings because, unlike the stock markets, the money you invest as a certificate of deposit grows thanks to its key feature: interest. This makes CDs one of the safest ways to get into investing your savings.
On the positive side, CDs give people a steady and predictable income which allows them to plan for their future. Of course, the downside is that it “locks” your money for a set period of time – so CDs should be considered only if you have money that you can set aside for a certain amount of time.
That said, they are other reasons why Certificate of Deposits are a risk-free, sound investment to consider.
Are you worried about betting on the stock market or the volatility in bond prices? A key benefit of CDs is that they are FDIC-insured up to $250,000 per account owner and per institution. So if the product were to fail, you know your money is protected.
While trading equities may result in losses, money put into a CD will continue to grow predictably thanks to its fixed interest rate for the life of the product. This key benefit makes CDs a safe place to park your funds for a set period that’s aligned with your financial goals. Say, for retirement or for a large, one-time expense — like a costly vacation in the future or your child's college tuition. Once can put their funds in a CD that matures right before you need it.
Then there are brokered CDs, available in a variety of maturities. Such products give you the option of choosing between high levels of liquidity, which means you can re-invest your funds regularly, and stability, which means you can lock in attractive interest rates for a long time. CDs having longer periods or maturities, like other fixed income securities, provide greater yields.
Another benefit of a certificate of deposits are that they generally have a low-to-no fee structure. Some banks don’t charge a monthly fee to hold your money in a CD. Having said that, always read the fine print carefully at the time of signing up to ensure there are no other costs, such as early withdrawal penalties or account management fees.
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