Things to know about investing in CD
Certificates of deposit or CD is one of the safest ways to invest your money. With a secure principal investment, you can expect fixed or predictable returns on your investment. Many customers are attracted towards CD because of the highest interest rates and can be a way to build-savings in the long term.
The highest CD rates are determined by how much money you can deposit and the period for how long you can commit the deposit to a CD. Today, a growing number of banks have expanded their offerings on CD and try to match the highest CD rates. The reason why banks can offer a good interest rate is because your CD is like a loan that you offer to the bank. This money is then offered to people who seek loans through banks. If you are planning on investing in CD, here are a few factors to be aware of:
Why should you choose a CD account over other investment options?
- The most pivotal factor about CD is that it is the most secure investment strategy. And although other investment options such as stocks earn higher rate interest, they are affected by the fluctuation in the market.
- The rate you earn through a CD investment is fixed at end of the tenure. You receive the amount as promised or more upon maturity of your deposit.
- If you do not require a big sum of your money at present but may require it soon, there is nothing better than earning interest on the principal sum till you require the money.
Which are the places to look at before investing in a CD account?
- Beginning with the Internet, you can look through various websites as this will give you a fair idea about the interest rates offered and also review options.
- Visit local banks, especially the one at which you hold an account currently. This bank is likely to offer you better interest rates because you are already a member at the institution.
- Credit unions also offer good interest rates and visiting one can get one will help in understanding the policy and interest rates offered.
What should one look for in an institution before making an investment?
- Look at a reputed institution before going ahead with your investment. Both, local startups and mega corporate banks come with their own pros and cons. A local bank may offer the highest CD rates but a big institution may be convenient. Thus, it depends on your preferences.
- Consider the history and profitability of a bank. You do not want to be banking with an institution that is incurring losses.
- Also, consider the capital-to-asset ratio. This will give you a good idea of whether a bank is safe to invest your money in.
What are the factors to consider when choosing a CD account?
- It is essential to carefully decide on the length or period of your CD term. Whether you decide on 30 days or 30 years, you do not want to withdraw your money before the tenure ends, as you may lose all the accumulated interest and might be charged an early withdrawal fee. Thus, do take enough time before deciding on the CD locking period.
- There are different types of CD accounts that you should explore. While the traditional deposit means waiting until maturity, there are other CD accounts where you receive money in installments and can also access your money before maturity.
- Read the contract well before investment. Consider the penalty you will have to pay in case of an emergency wherein you may have to withdraw from your CD account.