(ThePennyWatcher) – It’s important to look into all of your options when either trying to “save” your money or “invest” it.
As we know there are a ton of options, and some of them can get a little confusing to where we need the help of a financial professional.
But today we wanted to focus on one option that has been around for some time, and is easy to understand at the end of the day.
What are Certificates of Deposit (CDs)?
If you have a simple mind like many of us, you may have always thought of music when you hear of “CD’s, but that is totally not what we are talking about here.
Certificates of Deposit are a type of investment that offers a guaranteed return over time. It’s a pretty simple way to put your money into a savings account with a pre-set amount of time it will be in there, allowing interest to be accrued during that time.
The banks have set rates for how much interest they pay, so you can look into your local institutions to see where you may be able to get a higher rate of return.
CD’s are not as dangerous or “volatile” as more complex stocks, etc. They simply offer a set rate of interest for you to keep your hard earned cash with the bank.
And the banks will give you some piece of mind because they insure up to $250,000 of your investment, which is guaranteed by the FDIC.
Types of CDs
There are a few types of CD’s. Traditional CDs have fixed interest rates, making them a low-risk investment option. This could be a good option for a smaller investment, that also has a set rate of interest on it.
These can be 6 month or 12 month requirements, it all depends on the bank. Meaning you cannot access your funds until this time limit is up.
Jumbo CDs are for individuals who want to invest a higher amount, and these types can provide you a much higher interest rate. The banks reward the customer with a higher return on savings since they are providing them with more cash savings business.
With inflation being one of the main topics discussed today, an inflation-adjusted CD is also an option. This type of CD takes inflation into account and adjusts your interest rate accordingly.
Short-term CDs have lower interest rates but allows you to withdraw your money faster in case of an emergency, while long-term CDs pay higher interest rates.
CD’s are straight forward savings accounts, with interest options differing based off how much you invest. Certainly better than a standard savings account if you just plan to sit on your money for awhile.
What Are Maturity Rates?
Simply put, the maturity date is the date at which your CD reaches the end of its term and you can withdraw the funds, plus any earned interest. It’s important to pay attention to the maturity date of your CD because withdrawing funds before this date can result in penalties or fees.
As described above, you need to choose the best option for you. The time periods can range from 3month, 6 month, to 5 years. With each time period offering different rates.
Be smart, and educate your self with your local banks and then go for it!
