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There are many types of investments available and many choices to make depending on how much risk you are willing to take. Obviously with riskier investments like stocks, bonks or real estate the returns are higher. The opposite is true with safer investments where the returns are low.
Some of the safest investments are in certificates of deposit. Unfortuantely right now some of the lowest returns are in certificates of deposit since average CD rates are at historic lows right now.
On the bright side with most certificates of deposit you principal and interest earned is 100% safe as long as you keep your deposited amount below the FDIC or NCUA insured amount of $250,000. With declining fixed asset prices like real estate and a flat stock market since the year 2000 certificates of deposit (CDs) remain some of the safest investments.
Investing in certificates of deposit is fairly easy when compared to other investments but as with most financial investments it pays to do your homework and research different CD products available. It also pays to research bank CD rates and credit union CD rates online where there are many different financial institutions and websites listing the highest CD interest rates available.
Certificate of deposit accounts are avialable in many different forms and rates. The best thing you can do is to decide on the type and term of certificate of deposit and then shop for the best certificate of deposit rates.
If you’re a newbie to certificate of deposit investing opening a CD account is like opening a savings about with one big difference. You place your monies into an account for a fix period of time. The CD term, as it’s know, can be as short as 1 month or as long as 10 years. The most common CD term is 1 year which most banks and credit unions offer.
I mentioned CDs are insured for up to $250,000 above. There are two government entities, the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA). Both entities insure CD accounts for up to $250,000. The FDIC insures bank CDs and the NCUA insures credit union CDs, also known as certificates.
When you place your monies into a CD account for a period of time you agree to leave your monies in the account and the bank or credit union pays you a fixed rate of interest. This is called the CD rate. The financial institution pays you interest daily, weekly, monthly, quarterly or annually. The more frequent interest is paid the more the account earns and the higher the account annual percentage yield is (APY).
When deciding on which CD term to choose make sure you won’t need access to your money before the term ends. Though you can get your money sooner if you need it but you’ll have to pay a penalty which usually is some of the interest earned on the account. This is known as an early withdrawal penalty.
CD accounts used to be plain and simple. You just need to decide on the term you wanted. There are many new CDs available. There are CD accounts that know have a variable interest rate, which means the CD rate can change at any time. There are also CD accounts that allow you to add more money into the account after opening it, just like you would with a savings account.
There are also CD accounts that have fixed rates but allow you to raise the CD rate with CD rates move higher after you open the account. There are also CD accounts that are tied to stock market indices. So as you can see there are so many more choices with CD investing.
Before you shop for the highest rates you should figure out what you want. The best things to do are find out what CD term you want and what CD investment you want. Once you have a better idea you can go out and look for the best rates. You’ll be surprised to see the big difference banks or credit unions might be offering for the same CD product.
If a bank or credit union wants to raise deposits they might offer higher CD rates or even promotional CD rates. Then there are other banks that don’t want deposits so they lower their rates. Usually financial institutions that are not making that many loans won’t offer high deposit rates.
After you open your account mark your calender so you know when your CD account matures. That way you can shop again for the best CD rates. What a bank or credit union was offering last year or 5 years ago depending on how long you had your CD account, might not be offering the best rates now.