4 Things You Should Know About Investing In a CD

A CD (Certificate of Deposit) is a financial product that is provided by financial institutions such as commercial banks or a credit union. When you invest in a CD, you are simply putting your hard earned money in a bank for a specified period of time that’s usually between 3 months and 5 years. Once the specified duration has lapsed, the bank gives you back your money with the accumulated interest. Most people use CDs to save money for a rainy day. However, some people confuse them with government bonds. There is actually a clear line between the two investment options. When you invest in a bond, you are simply loaning money to the government. But with a CD, your money is kept in a bank until the maturity date. If you are new to the world of CDs, it’s advisable you read the points outlined below to know more about this amazing investment tool.

  1. It’s a Low Risk Investment

This is definitely the good thing about investing in a CD. Unlike other investment options that depreciate with time or due to political and economic issues, an investment in CD remains stable regardless of the changes in circumstances. Even if the government announced an increase or a decline in interest rate, you would still make profit from your investment. The other advantage is that your investment can’t vanish into the thin air like a scam. This is because all CDs are protected by FDIC. You can therefore have peace of mind after you have put your money in such an account. It’s better to invest in a CD and earn a small interest than to venture into a risky business where the returns and seed capital are not guaranteed.

  1. You have to be Patient

A CD investment is not a get rich quick scheme. You can’t make money in an overnight just because you have put money in a CD. You must actually wait until the specified maturity date to be able to withdraw the principal and the accumulated interest. This means that you should never invest with money that you will need in the near future. Remember, the longer the investment period, the more profit you will make. Keep in mind that requesting for a withdrawal of funds before the maturity date attracts a huge penalty.

  1. It Yields More Returns than Checking and Savings Account

This one is a no brainer. A savings or checking account earns a very low interest when compared with a CD account. This is because you are allowed to access the money without any limitations. Regardless of the period you want to invest, the difference between the interest earned from CD and ordinary accounts is too big. A CD actually generates an interest that’s more than double the interest that’s earned from savings and checking accounts respectively.

  1. You can tell the Amount you will earn After Maturity

Most people prefer to invest in CDs because it’s possible to budget for the money before you earn it. In other words, you can confidently count your chickens before they hatch. This is due to the fact that the interest rate that’s allocated to your money is permanent. You can actually boost your earning potential by finding the best Jumbo CD rates. In fact, you can keep renewing your CD after it has matured as long as you don’t intend to use the principal amount in the near future.