Understanding CDs and CD Rates

A certificate of deposit (CD) is simply another term for time deposit. What this generally means is that you entrust your hard-earned monetary savings to a bank or a credit union, agreeing to leave a certain significant amount into their hands for a certain period of time. With federal insurance that may or may not cover the entire sum you are willing to deposit, you will end up having magnified the amount of money you deposited by gaining interest that the bank or union has to offer. This is why most people decide to invest in CDs—so that their savings are not left standing in a dormant and unproductive state.

Although certificates of deposit (CDs) were in legal existence way back in the 1960’s, they were not very popular until about a decade later. This is mostly due to the misconception that CDs did not offer insurances. On the other hand, in the 1970’s CDs gained popularity when it was made clear that they did offer federal insurance protection that were reported to amount to $100,000. Moreover, as compared with regular bank savings account, CDs promised interest rates that are way higher. This simply means that CDs offer more money in store for you, and that money is protected and insured.

Before you make the final decision on whether to choose CDs over regular bank savings accounts, there are a few important things you must weigh. Like any other thing in the world, CDs also have their pros and cons. On the bright side, CD rates are generally higher than regular savings accounts. In addition to that, they are known to do well come inflation period. Even more than that, if you find the best CD rates with proper insurance coverage, you’ll have the possibility of enjoying the benefits of ‘compounding’ wherein you significantly earn interest from interest.

On the other hand, since you are agreeing to leave your money without withdrawing for a fixed timeframe, you should make it a point to find a reputable and stable bank or union that is most unlikely to fail and go broke. Plus, if you are left with no choice and an emergency prompts you to withdraw the money you have deposited outside of the agreed timeframe (whether in installments or in full), you should know that you will be penalized with an amount reaching 3 to 6 months of interest. Therefore, you should definitely make sure that you’ll have a regular savings account at hand aside from a CD.

After having gone over the pros and cons of CDs, you should start looking for the highest CD rates to earn the most money from your otherwise dormant savings account. When hunting for the best CD rates, try checking out what banks call ‘jumbo’ CDs. Jumbo CDs promise payment of higher interest rates. On the down side, you should know that a certain fractions of it may or may not have federal insurance. As a final tip, when searching for the best CD rates, do make the necessary research before making the final and irrevocable decision of entrusting your funds to the right hands.