Understanding CD Rates

Investing is something that people should do. If you have a lump sum of money, you should not think twice about utilizing it for investment. Remember that it is a right thing to do to invest for the future. You are not only investing for yourself but for your family as well. There are a lot of ways on how to invest your money. You can invest it by buying a property. You can put up a business that you think would yield big profit for you. You can also consider investing it in the stock market. There are some people who would just simply want to open a bank account. They will just let the money rest there for a specific span of time, after which interest will be generated. A very good example is the Certificate of Deposit. Maybe some of you are aware of this. But for the benefit of those who are not familiar with it, let’s do some comprehension of what CD is.

Certificate of Deposits or much well known as CD, are debt instruments which can be short term or medium term. These kinds of deposits are being issued by thrift institutions, banks or credit institutions. People who are planning to avail CD should not worry because it is being insured by FDIC (insurance for banks) and NCUA (insurance for credit unions). People can assure that Certificate of Deposits are the same with savings account because of the fact that both are risk free and are insured by FDIC if money is being subjected to a bank. It is usually termed as ‘money in the bank’.

Process speaking, CD is different from savings accounts for they have more specific, fixed term, usually varies for three months, six months, one year or five years. CD rates are usually fixed. The main concept of this type of investment is to hold the money until its maturity. After a specific range of time, the money can then be withdrawn, together with the highest CD rates that the deposit can achieve.

Investors will entrust their funds on a certain bank or financial institution for a certain period of time. Set expectations that once you opt to do CD, you will not be able to touch your money. In other words, you can’t withdraw any amount. The banks or credit institution will then pay a predetermined interest rate which is referred as Certificate of Deposit Rate or CD rate. Bear in mind that CD rate is fixed, so it is crucial for investors to find a financial institution with best CD rates. In case that the investor opt to withdraw the money before the Certificate of Deposit’s maturity, there will be a corresponding penalty.

If you want to have the best rates, then you can do some comparison. You can compare the rates of different banks or credit unions. The philosophy of CD is that the longer your money will stay to the financial institution, the higher the interests will be. Thus the main factors for CD are the length of maturity period and institution’s interest rate.

So if you’re having hard time thinking about what type of investing method you are going to use, you can take Certificate of Deposit as your option.