In financial terms CD represents “certificate of deposit” and is what is known as a time deposit. It is issued by a financial institution and entitles the holder to interest accrued in exchange for maintaining the funds deposited for a specific term with restricted freedom to withdraw.
A CD is said to mature when this term elapses. While it is possible to withdraw money from a CD, penalties are usually incurred. Generally the fixed terms offered are 3 months, 6 months, 12 months, up to five years. Longer terms on average generate higher interest. CDs resemble savings accounts in that they are insured by the FDIC and are considered a risk free investment.
Currently 12 month CD rates fluctuate between 0.99% and 1.60%. They also vary depending on the amount of the deposit as well as the location of the financial institution. Some CDs earn interest from the moment they are deposited, while others start from the beginning of the following month or quarter.
Penalties discourage account holders from making early withdrawals. When a Certificate of Deposit is set to mature, some financial institutions will offer the account holder the option of rolling over the principal and accrued interest in to another CD. Although some financial institutions automatically roll the CDs over, specifying only a grace period before doing so.
The interest on a Certificate of Deposit can be paid out in a couple of different forms. Some banks and financial institutions offer the account holder the opportunity to have the interest mailed at regular intervals as a check, or transferred in to a checking account or regular savings account. Because the money will not be compounded, this decreases the total revenue. Account holders can also opt to have the interest collected at the time the CD matures.
Deposit brokers also offer CDs. The benefit of using a brokerage firm is they can often negotiate a higher interest rate for the account holder. They can accomplish this by guaranteeing to draw a minimum number of deposits to the bank or financial institution. These brokered Certificates of Deposit are sometimes owned by a group of investors rather than an individual. Each unrelated investor owns a portion of the Certificate, which means each can qualify for up to $100,000 of FDIC coverage. Generally the standard coverage for single account holders is up to $250,000 per depositor.
While CDs are a safe way to increase earnings from deposits, they generally don′t make much more in interest than an average savings account, but they are easy to set up and manage which makes it a boon to the average account holder who knows little of investment strategies.
Check out the best CD rates at Geddes Federal Savings and Loan Association CD Rates and First Green Bank CD Rates
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