We probably have never considered making bold financial moves as much as we do now, after an economic crisis that has sent ripples across all facets of modern life. Whether speculating on the foreign exchange market, or making a clever investment that will benefit us greatly over time, we have all become a little more aware of the need to carefully plan our finances.
CDs (certificates of deposit) are a type of financial product offered by various banks and credit unions in the United States. They are considered to be the best type of short- to medium-term investment, and many account holders view them as extra-safe, with no market risk, as they are insured by the FDIC (Federal Deposit Insurance Corporation). They are, in many ways, similar to other savings accounts, with a few distinctions.
The main difference between CDs and other types of money deposits is their fixed term, and the oft-fixed nature of CD rates. However, as most people are on the hunt for the highest interest rates to either supplement their retirement income or assist their kids through college, a number of institutions offer variable interest rates for CDs, depending on the overall state of the economy at the time. If interest rates are predicted to rise over the course of the coming year, some financial institutions may modify the way in which the interest is paid out.
This has led to the creation of various types of CDs in response to investors' many needs, such as bump-up, liquid, variable-rate, brokered, and callable CDs.
One of the most popular products is the bump-up CD, which allows the client the possibility to increase the rate once during the term of the CD. This is great for the account holder, as the bank can "bump up" the rate on that product to a higher rate offered for that type of investment.
Brokered CDs are provided by brokerage firms which can negotiate higher interests rates for you, and callable CDs give the bank the opportunity to buy back the CD after an established period of time has passed. Liquid CDs have a fixed rate, but they also allow the client to withdraw an amount from the account before its maturity, and, last but not least, variable-rate CDs will calculate the interest you receive upon maturity, based on the outcome of the market index.