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Certificates of Deposit (CD)
"Like the platform shoes you saved in the back of your
closet, hoping for their return to the fashion runways,
when interest rates are high, CDs come back in style."
- Lorayne Fiorillo, author of
Financial Fitness in 45 Days
The longer you invest your money in a CD, the higher the
interest rate you'll receive. However, when you put your money
in a CD, you are committing to leaving it there for a certain
period of time in order to earn the published interest rate.
If you redeem your money from the account before the end of
the term, you may incur a penalty charge.
The following are characteristics of a CD:
- CD terms range from 7 days to up to ten years.
- Usually the longer term you choose, the higher the interest
rate offered.
- With a short-term CD, interest generally does not compound
but is paid out at the end of the term, when it "matures".
- With a long-term CD, interest generally compounds and
is credited to your account on a monthly basis.
- You may withdraw the interest from your account without
penalty.
- CDs require a minimum deposit--typically anywhere from
$1,000 to $15,000.
- Most CDs automatically renew at the end of their term.
- CDs benefit from FDIC insurance up to $100,000 per account.
A shorter-term CD often requires a higher minimum to open
the account, but you are able to access your funds sooner.
A longer-term CD is a good place to park your money if you
want the opportunity to earn a higher interest rate but still
get the safety of FDIC insurance.
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