A Little Ditty About My Favorite Investments

Certificate of Deposits

Certificate of Deposits, otherwise known as time deposits, are usually savings accounts that are put in the bank during a set period of time with a preset interest rate and can only be withdrawn on maturity. CDs can be made as little as a month or as long as 5 years, based on your contract with the bank or credit organization.

CDs are effectively risk free in the sense that it is insured (insured by the FDIC for banks or by the NCUA for credit unions) much like a savings account. Until December 31, 2013, lone depositors are insured for $250,000 and $250,000 per joint depositor in a joint account. The protection for both single and joint accounts will be $100,000 after December 31, 2013.

HOW TIME DEPOSITS WORK. Banks expect a minimum deposit to open a CD. Generally people say that Time Deposits are only good places to deposit short term funds. The basis behind this is that inflation is simply going to destroy it if you were to tie your capital for 5 years. Various banks and financial institutions present CDs at various interest rates. There are those that offer the top interest rates for a $100,000 deposit but there are also some who provide low interest rates for large deposits.

ADVANTAGES OF CDs. People are apt to go with CDs rather than depositing their capital in regular savings and checking accounts as a result of higher interest yield. Aside from this, CDs are safer and less unstable unlike all the other money markets available. Regardless of market inflation, your return on investment is guaranteed due to the unchanging rate of interest. Initiating a CD is as hassle-free as initiating a normal savings account. All you need to do is to walk in your bank of choice, present them the needed requirements and you should be able to walk out with a CD in hand. The nice thing about receiving a CD is its simplicity. When you initiate a CD, you will receive a certificate disclosing the conditions and the amount of return at maturity.

DRAWBACKS OF CDs. Compared to riskier investments, CD are secure but they make less return. In addition, your money is tied up for the length of the CD and you will not be able to take it out without paying a considerable withdrawal penalty. As the rate of interest is unchanging, it is difficult to change or to take benefit of the market condition when the market rates are beneficial. If you want to invest more than $250,000, you will need to open a new CD at a different bank as the coverage is per deposit in a solitary institution. Thinking about it is trouble enough, what more doing it in real life.

WHAT TO LOOK FOR. To make the highest return on your funds, you will need to look for banks with the greatest interest rates. It is a good idea to predict your fiscal needs and how long you can tie up your capital in a time deposit.