Certificates of deposit (CDs) are a type of FDIC insured investment that is offered by numerous banks, credit unions and savings and loan institutions in the United States. What that actually means, in simple terms, is that a person can deposit a certain amount of money in the bank, receive a monthly interest rate, and collect the total amount upon the investment’s maturity.
CD rates are usually fixed (although there are numerous variants of the traditional CD which offer flexibility in this regard), and, since it represents money stored in the bank, it is one of the most financially safe investments available today, and one of the most rewarding.
Investors usually seek services which provide higher interest rates, as this would increase the amount they can collect at the end of the term, and banks are willing to offer many attractive deals to cater to those demands.
Closing a CD before its term, or making any withdrawals, will usually become the subject of penalty. This can be losing several months’ worth of interest, or other such similar measures.
While many investors seek longer-term CDs for their high interest rates, this may prove detrimental in rapidly growing economies, as it forfeits the chance to reinvest in better opportunities when they arise. As a consequence, it is sometimes more advantageous to risk the penalty while keeping pace with an ever-changing financial environment.Powered by Sidelines