Posted on May 16, 2010.
What is a CD (certificate of deposit)? The CD term is synonymous with certificate of deposit. A CD is simply an investment in the short and medium-long. They are FDIC insured and are available for purchase from banks, credit unions and savings and loans. CD's are a great way for consumers to get some interest on their money, but there are some issues associated with them that consumers should know before signing up for one.
In simple terms, the CDs work like this: You put a certain amount of money in the institution for a certain period of time. The institution will use this money for various purposes. In exchange for placing your money with them, we promise you a predetermined interest rate on money, and having your money protected by the FDIC. The FDIC is the Federal Deposit Insurance Corporation, and it protects your money if the bank or savings and loan fails.
Buy CD's is a good safe way to invest money, but it has some drawbacks. On the one hand, once you buy the CD you're not allowed to withdraw money without penalty. It is for withdrawals that occur before the CD matures. Another drawback may be the length of time it takes for a CD before maturity. This may vary considerably, but it is common that many CDs with maturities between 1 and 5 years. There are more short-term CDs as well, and there are more CD-term, some maturing to 10 to 20 years. It is important to understand the length of maturity before you register for one, and understand that this money will be bound in the CD so that the length of time.
A certificate of deposit is very useful for some people. Because it is a very low risk investment, it can be especially helpful for seniors and youth who want to start using their savings. There is also a good way to invest for those with limited amounts of money they can invest.
All consumers should ensure they get their CD from an FDIC-back source. Normally, you will know if you buy the CD on your own at your bank, but if you use a broker to buy the CD for you, make sure you know which bank is issuing the certificate of deposit, and that the bank is assured.
Before buying your CD, sit down with the bank and how does the interest rate. You may obtain a fixed rate on your CD or you can get a variable rate. It is important to know who is connected to your CD as this will affect your benefit. If you buy a jumbo CD (a CD that is more than $ 100,000) Be sure to discuss the issue of protection. The FDIC does not save that amount and you want to know what the financial institution can do to help protect the money you invest above this limit.
Finally, the rates range from CD you can shop around for the institution offering the best rate for your certificate of deposit.
