Tips on Buying Bank CDs
Consider investing money in a Certificate of Deposit (CD) where value is insured by the bank and the interest rate is higher than a savings account.
There are a number of investment options for individuals to consider that differ based on who offers it, what the rate of return is and how much risk is involved. Certificates of deposit are one investment that many consider, especially if an investor is conservative with money because of the safety associated with CDs.
What Is a CD?
A CD is a certificate of deposit that is offered by a bank or other savings institution. These products guarantee a certain rate interest for a given period of time. For example, a bank might offer to pay 4 percent interest per year for a three-year CD.
Check the interest rate on any CD. The higher the rate the better.
Check the amount of time the money must stay in the CD. Usually, longer CD time frames have higher interest rates, but the money is also locked away for a longer period of time.
Some CDs have high penalties for withdrawals made before the time period expires. Be sure the money won't be needed for the time period it is left in the CD or look for CDs with low penalties.
Advantages of CDs
CDs are almost guaranteed investments because banks are insured for up to $100,000 per account so unless the CD is for more than that, the money is safe. In addition, CDs will usually produce a higher rate of return than a savings account.