In deciding whether a CD is right for you, consider your investment time frame. When you cash in the CD before the term is up, banks are more limited in how they can invest your money, and they pass this cost on to you in the form of early withdrawal penalties.
However, if you cash in your CD before it matures, you will likely have to pay early withdrawal penalties, which can be severe. In return - when your CD matures - the bank pays you interest, which you receive in addition to the amount you originally invested. When you buy a CD, you invest a fixed amount - typically $500 to $1,000 - for a fixed period terms can range from six months to five years or more. What Is a CD?Ī certificate of deposit is a unique kind of deposit account that generally provides a higher yield than a traditional savings account. The following guide covers everything you should know about investing in CDs, from their benefits to the kinds available. Additionally, CDs have higher rates of return than savings or money market accounts. They offer a more profitable alternative to letting your money languish in a checking account earning negligible interest. Because they feature federal deposit insurance of up to $250,000, CDs are also a low-risk investment. Certificates of deposit, or CDs, are a sound investment option when you have extra cash that you don't intend to use soon.
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