Certificates of Deposit are referred to as CDs. These are comparable to savings accounts for many people that use them. Certificates of Deposit are attractive because they pay more substantially more interest than savings accounts or even money market accounts, are insured and guaranteed funds without risk. One drawback to a certificate of deposit is that you must leave your money in them for a specified amount of time.
Owning a certificate of deposit will certainly aid in growing your money invested. Certificates of deposits come in different denominations. In other words, you can purchase or invest your money in different amounts. With this form of investment you agree to keep your money in a certificate of deposit for a specific amount of time and in exchange the bank or lending institution will pay you a specified amount of interest on that money.
After you have purchased a certificate of deposit and the maturity date arrives, you have several options as to what you would like to do with your money. You can withdraw your money and interest earned or you can reinvest the money, reinvest the interest earned or reinvest both. Many lending institutions will automatically reinvest for owners. When setting up your initial investment verify what your bank or lending institution has set up for the initial paperwork or contract.
Interest for CDs is generally paid at different times. Payments can be quarterly, monthly or even annually. The longer your CD account is held will generally pay you a higher rate of interest. For example, if you purchase a CD account that has six months for a maturity date, a CD with a year maturity date will pay a higher amount of interest.
The actual payment on your CD account is made through check, transfer or reinvestment into the certificate of deposit. For many that hold certificates of deposit, when the interest is paid the check is automatically deposited into another account at the bank. This other account can be your checking or savings accounts.
If for some reason you decide to withdraw your money from the certificate of deposit before the mutually agreed upon date, you will receive a penalty on the interest amount the bank or lending institution agreed to pay you. Without any type of risk in your investment, many people enjoy the security of this category of speculation.
Although the return could possibly be higher in the stock market the risk to reward ratio is better for certificates of deposit. The longer your terms are for the outlay the higher interest rate is generally paid for each certificate of deposit.
Interest earned on your CD is simple to calculate. Generally the interest is constant and doesn’t change unless you change your CD amount or your bank or lending institution changes. The payments are generally the same each quarter, month or yearly payment that is made.
If you have any questions or concerns about your taxable amounts that must be paid on interest for your CD investments, discuss these with your accountant.
Obtaining CDs can be performed easily through lending institutions, most generally a bank. Some banks will allow long time or established customers to set some up over the phone. Different banks or lending institutions have different interest rates available. Shop around and get the best deal on hand for your money.