Certificates of Deposit

There are many types of wealth. Unfortunately, the Great Recession showed that wealth is susceptible to downturns in the market, crashing stocks and other twists of fate. Naturally everyone who makes money is looking for ways to protect it, especially if they have families or have been saving for years. One of the best and most risk-free ways to guard your money is to place it in a Certificate of Deposit.

CD’s are an excellent way to watch your money grow slowly and steadily without putting it at risk of the market’s whims. However, it can be a tough subject to explore for the first time. We here at PaydayLoansCashAdvance know that financial matters in general and CD’s in particular can be a confusing matter to wrap your brain around, so we’ve broken down some of the most crucial questions and points by category.

What Is a Certificate of Deposit?
According to the Federal Deposit Insurance Corporation (FDIC), a CD is a “special type of deposit account with a bank or thrift institution that typically offers a higher rate of interest than a regular savings account.”

Essentially this means that you “purchase” CD’s with the amount of money you’d like to put into the account. You commit to this entire amount for a fixed period of time. That time period could be half a year, one year, five years or longer. Once that money is in the account, it must stay there, in return for which the bank will pay you interest on your investment. At the end of the agreed-upon time period you may reclaim your money plus the interest that has accrued in the interim.

What Are the Pros of Certificates of Deposit?
CD’s are very stable, which is often why people choose to put their money in them. These days they come with a range of available features, though the standard type simply offers a fixed interest rate administered over the time period of the deposit. But special options include low-to no-penalty options for early withdrawal, adjustment in the case of the depositor’s death, acceleration to maturity, or linking to the market to provide a higher return on investment. Essentially, though, the appeal of a CD is its stability.

What Are the Cons of Certificates of Deposit?
Like all bank deposit types, a CD is insured by the FDIC for up to a quarter million dollars per institution per account type. Unfortunately, that means that if a bank goes belly up and you have more than $250,000 in any particular account, you will not be insured for the remainder of the money. That makes it a bad idea to put more than that amount in a single account, or even in two similar accounts at the same institution. Spreading out your money always ensures greater safety, so if you’d like to put more than that in a CD, consider two separate CD’s at two separate banks or credit unions.

Banks do not take early withdrawal lightly, and taking your money out of a CD before it is mature – meaning that its time period has expired – usually results in penalties or forfeiting part of the amount you put in. Unless you specifically sign up for a CD that has small or no penalties for early withdrawal, you should be extremely wary of removing money. If you think there’s a chance you will want access to the money before the time period ends, you may wish to consider a different type of account. Either that, or pick a shorter time period than you otherwise would just to be on the safe side.

Lastly, a certificate of deposit cannot be adjusted. Unlike a bank account, into which you can deposit more money when you get it, a CD will not allow you to add to it once the money has been put in. Additionally, CD’s generally require a much larger amount than needed to start a savings or checking account, so you are unlikely to receive the benefits without the requisite amount of money.

How Do You Pick the Right Certificate of Deposit?
First look carefully at the pros and cons and decide what kind of CD would work best for you. This means analyzing your own financial goals and getting a clear handle on the amount of money and time period you think would work best for you. When picking a time period, make sure you will not need the money early and will be able to claim it when it comes due to avoid extra charges. Pick a deposit plan with interest delivery that works for you, like monthly, yearly or when the CD is over.

Pursue Security and Stability
Ensure that you are not at risk of losing part of your investment by investing more than the maximum amount insurable by the FDIC at any one institution. In addition, secure against your own tendencies by choosing a CD that will fit your needs not just immediately but for the duration of the deposit so that you are not tempted to withdraw early and pay penalties.

Make sure you know your bank, lender or broker before investing in a certificate of deposit. CD’s are by nature designed to be extremely low-risk, but the ones tied to the market may be less so. If what you want is a safe place to grow your money, choose the lowest risk options. Either way, always talk the matter through thoroughly with your bank representative or broker as well as any family members who might be joint decision-makers.

At PaydayLoansCashAdvance, we know that some of your biggest concerns in life are financial in nature. Because that’s the case, we also know that you want to know absolutely as much as you can about good ways to save for the future, like CD’s. Before making a decision, ensure you understand the subject entirely to enable you to the best financial choice in a difficult economy.

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