The time value of a CD is directly tied to the term and interest rate. As you consider investing in CDs, start by determining how much you have to invest and if the annual percentage yield (APY) makes sense for your money. While some banks don’t have a minimum, others require you to deposit at least $1,000 or more. Decide How Much You Want to Depositĭepending on the bank, you may have to come up with a minimum deposit amount. #BEST CD TO INVEST IN HOW TO#Before buying in, you must decide on your deposit amount, the right term length, the early withdrawal penalty, and how to find the highest yielding CDs. If you decide that investing in CDs presents a long-term, stable growth investment opportunity, it’s time to look into all the factors of a certificate of deposit. If you are unsure, you may want to consider one of the many CD alternatives in the marketplace. Once you lock into a CD investment, your deposit amount is fixed for the life of the CD.īefore investing money in CDs, be sure you are comfortable with your amount and interest rate, and are confident it is the best growth opportunity for your money. While you can deposit and withdraw money from a savings account (based on a variable interest rate), CDs are locked in with a deposit amount and interest rate. In addition, investing in CDs may not necessarily gain a higher yield than a savings account. Before investing money in CDs, be sure to understand how much the early withdrawal fee is, and if there is a waiver for holding your money there for a set period of time. If you decide to withdraw the money before the maturation date, the early withdrawal penalty could effectively cost you what you gained in interest, or cut into the principal based on your agreement. Investing in a CD assumes that you will not need the money for the life of the investment. Although you will earn money if the CD reaches its maturity date, your overall gains could be reduced to inflation, resulting in a net loss, compared to other investment options. Investing in a CD is not necessarily guaranteed to keep pace with the rate of inflation. Cons of Investing in CDsĪlthough CDs are considered a “low risk” investment, they do come with some natural risks. Regardless of what happens to the bank throughout the life of the CD, your money is insured, and will be paid out either by the bank or the FDIC. In addition, a CD investment is usually guaranteed by the Federal Deposit Insurance Corporation (FDIC), up to $250,000. Once you agree to open a CD, your money will grow at the locked-in rate through the maturity date.įor example: If you invest $100 into a CD account with a locked in rate of 3.5% and a maturity date of three years, your investment will be worth roughly $110.87 in three years (a cumulative return of $10.87). Perhaps the biggest positive note of opening a CD is the guaranteed interest rate for the duration of the CD. HOW CDs WORKġ: An individual invests in a CD, with an interest rate and maturity date agreed upon by both the investor and the bank.Ģ: The bank holds onto the money similar to a bank account, and is usually insured by the FDIC for up to $250,000.ģ: The investor agrees to keep the money in the CD until the maturity date, or face an early withdrawal penalty for accessing their money before.Ĥ: At the maturity date, the investor can take the money (plus interest), or roll it over into another CD. If you request to withdraw your money before that maturity date, you may be charged an early withdrawal penalty by the bank. Unlike a savings account, a CD is a “term investment,” meaning the fund has a target maturity date. As long as the money is held by the bank, it will grow in value at the CD’s interest rate. When you invest in a CD, you are giving your bank or credit union a deposit for a certain amount of time (between six months and five years). What to Know About Investing in CDsĪ certificate of deposit can be considered a hybrid of opening a high-yield savings account and investing in the economic market. If you’re thinking about a beginner CD – or want to diversify your portfolio with another vehicle with long-term returns – here’s what to know about investing in CDs. However, for those who are looking for a guaranteed rate of return, another great choice exists: the Certificate of Deposit (CD for short).Īs with all investments, it’s important to do research on investing in a CD (and the potential rate of return it could provide well down the line). When most people think about investing, they think of stocks, bonds, and other traditional options.
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