When it comes to finding the best and most secure way to save and grow your investments, a certificate of deposit (CD) would probably be the right option for you. A CD is a deposit account that comes with a specific term that runs from three months up to 10 years. The money you put into your certificate of deposit will generate interest regardless of the market conditions prevailing. Read on to learn the top tips on using a certificate of deposit to your advantage.
CDs Have Low Fees
The major benefit of a CD is that it has low fees, and in some cases, you may not pay any monthly fees to the financial institution to hold your money. This comes in handy since you do not need to worry about the monthly charges that can impact your earnings. However, you should avoid an early withdrawal of money before its maturity date since this may attract a penalty. You must carefully read the agreement when you open a CD account. Some banks do not have any penalties on a CD account. Additionally, a CD is insured which means that your funds will be secured. Should your bank go out of business, you will get your funds together with interest.
A Certificate of Deposit has A Fixed Interest Rate
Financial markets can be unpredictable, but the good thing with a CD is that it comes with a fixed interest rate. Regardless of the market volatility, your money will grow at a steady interest rate over the entire term of the CD. You need to shop around to get the best CD rates to earn more money from your initial deposit. With a higher deposit and a longer CD term, you would be guaranteed a steady income. In other words, a CD account offers predictability, and you can determine the interest that you will earn over time.
Unlike investing in stock markets that are often volatile, a CD account is designed to protect your money. Your funds will generate a steady income over the entire term of your account. You can cash out at different periods and still get your principal. Another important thing that you should ask is whether the interest rate ever changes. Some variable CDs offer bonus rates that are determined by a specified market index. If you have a fixed interest rate, your funds might be locked regardless of the changes in the market interest rates.
Avoid Withdrawing Money From Your CD
You should avoid withdrawing money from your CD before the expiry of its term if you want to reap the full benefits of the account. If you withdraw money from your account, you will be penalized, and you can lose one month’s interest depending on the amount you get. At the end of the CD term, some banks will automatically deposit your proceeds into your savings or checking account. Other institutions may roll over your CD into another term. If you do not want to keep your investment liquid, then you can consider the option of getting a certificate of deposit.
A CD Comes With Different Maturity Dates
The other advantage of a CD account is that it comes with different maturity dates. If you are planning to save money for a vacation or tuition fees, you can put your funds in a CD account for a specific period. With this type of account, you can save money for one-time expenses. A CD is flexible such that you can determine the maturity date that you want to withdraw your funds.
Check How the CD is Held
You must find out how the certificate of deposit is held to safeguard your investment. In some cases, a CD is owned by a group of investors. The other thing that you should know is that the brokers do not necessarily need to go through a licensing procedure. You should check if your broker has no history of fraud or other related complaints from the consumers.
If you are planning to save your money, a certificate of deposit is the best option that you can consider. A CD comes with a fixed interest rate which means that your money will grow regardless of the market conditions that may prevail at different times. To enjoy the benefits of a CD account, you must shop around to get the best rates. However, you must be careful to avoid withdrawing your funds before the maturity date of your CD term. Some banks charge penalties for the early withdrawal of money from your account.