Certificates of Deposit
Certificates of Deposit (CD's) are a great way to save money while earning interest on it. The way the work is the investore loans a specific amount of money to a financial institution for a specific amount of time. By doing so they agree to allow them to use their money to invest in securities or to fund loans. In return the investore will earn interest on his/her money. The Federal Deposit Insurance Corporation (FDIC) insures most CD's so they are fairly low risk. Usually, there is a minimum deposit required and you can choose a maturity date of three months, six months, one year, or five years. When the CD has reached maturity, you can withdraw the original investment amount plus any interest that was earned from it.
You can purchase both fixed rate CDs and variable rate CDs although the fixed rate CD is the most common. The actual interest rate is determined by several factors, such as the type of CD, the principle amount, the term of the CD, and the size of the company that you purchase it from. As a side note, you want to obtain the highest interest rate possible. This will increase the return on your investment. Many financial institutions will offer you a higher interest rate on your CD if you agree to a longer term. This allows them to use your money for a longer period of time, which increases the amount of money they make.
When a CD matures, you will usually be given the option of either taking the money or reinvesting it into a new CD. In some cases, the CD is automatically rolled over into a new CD unless you state otherwise. If you decide that you want to withdraw the money from your CD before it matures, you will have to pay a penalty for early withdrawal. Likewise, if you wait too long to claim your money. Normally, after a CD matures, you have specified amount of time to claim your money. If you do not claim it within that time frame you will be charged a penalty fee and if you do nothing with it within that time frame, most financial institutions will automatically roll your funds into a new CD.
If you are looking for a way to save money while earning interest on it, a certificate of deposit might be what you are looking for. Savings accounts earn interest but at a much lower rate. You are much better off with a CD. Although, before you run out and purchase one it is a good idea to check into the different types of CDs available. Speak with a representative from your local bank or credit union to determine which type best fits your needs.
