Are Certificates Of Deposit Safe?
Certificates of Deposit are great ways to invest, but are they safe? Read up on the safety of these low risk investments.
Investing in Certificates of Deposit (CDs) is one of the safest ways to make your money grow. A low-risk investment, CDs are often suggested to first time investors as a way to get their money working for them without any of the volatility of stock based options. There are only a few downsides to investing in CDs, but if they are used properly they will always result in a return on the investment.
What Makes Certificates of Deposit Safe?
To start with, they qualify for FDIC insurance from the government. Up to $250,000 in a single bank will be insured in case of bank failure. If you are a high volume investor and it looks like your CDs will push your bank assets over $250,000, consider purchasing CDs at a different financial institution. This will allow yet another $250,000 worth of insurance to take effect. Remember, it has to be an entirely different bank, not just a different branch.
How Can I Keep My Money Safe in a Certificate of Deposit?
Almost all CDs have provisions that money must be kept in for the entire length of the investment. The maturation time of a CD can range from one year to twenty. Taking money out early will result in a penalty of some sort. This is usually in the form of a cash penalty or forfeiture of interest payment. People who regularly need to withdraw from their savings account should not invest in CDs if they are afraid they might need to cash in early.
Watching Certificate of Deposit Interest Rates
When you buy a CD, you are locked into the interest rate it was purchased at. This can be great news if interest rates go down, but a calamity if they go way up after the purchase. Pay attention to market trends and see if there will be any raise in interest rates soon before you make an investment in a CD.
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