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What is a Certificate of Deposit

Tips that will show you what a Certificate of Deposit is and how you can successfully choose the one that’s right for you.

A Certificate of Deposit is very similar to a savings account. However, there are a few differences. The money has to remain with the financial institution for a set amount of time and the interest rates are usually higher.
Personal certificates of deposit pay a higher interest rate than a business certificate.

Fixed Maturity and Interest Rates

A certificate of deposit, commonly referred to as a CD, must remain in the financial establishment for a fixed amount of time. This is usually three months, six months or one to five years. You also need to decide if a fixed interest rate or a variable rate would be better. Either rate can be good, but the variable rate could drop.

FDIC Insurance on the Certificate of Deposit

If the bank which holds your CD is insured by FDIC, then your deposits are insured and risk free. Make sure you are dealing with an FDIC insured establishment.

Receiving the Interest

When you acquire the CD you must decide how you would like to receive the interest. You can choose whether to have the interest deposited into a bank account or request that a check be sent to you. You may leave the interest and let it accumulate until maturity. If you plan to use the interest for business or household expenses then this will create guaranteed income.

Early Withdrawal

If you withdraw the funds early, there will be penalties. This can be an amount up to as much as six months interest. If you think you may need the money in the near future, just get a one year certificate of deposit. If you don’t need it, then roll it over.

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What is a Certificate of Deposit

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