Certificate of Deposit

What is a certificate of deposit?
A certificate of deposit allows you to invest your money for a set period of time at a certain interest rate. It is a great tool if you have funds that you don't need immediate access to. You allow the bank or credit union to use your money in exchange for interest you earn during that time frame. At the end of the designated period of time you once again have access to your money and can reinvest it or take it out plus the interest you have earned. The interest earned is taxable.

What interest rate can I earn on a certificate of deposit?
Interest rates vary on certificates of deposit from institution to institution. A rule of thumb is that the larger the sum invested, the greater return can be expected. Generally you can count on certificate of deposits having a higher interest rate than a simple savings account or a money market account.

It would be in your best interest to research the interest rates offered in your community to get the best return possible. A good source of help is LocalLender.Info. They offer an InvestmentMatch service that puts you in touch with an investment professional to help you find the best certificate of deposit rates possible. They will put you in touch with the nation's best financial institutions. Click here to use the InvestmentMatch service

How long do I have to commit my money if I choose a certificate of deposit?
There are several term options available on certificate of deposits. They range from 3 months to multiple years. The most common are 6 months or 1 year terms. Keep in mind that the longer you are willing to let the bank or credit union use your money, the greater the interest rate you can secure. This means the greatest earnings for you.

What if I need my money, can I liquidate my certificate of deposit?
The quick answer is yes. But there will be penalties involved for an early withdrawl. By not allowing the bank or credit union to have the full use of the money they penalize you for taking it out early. If you think you may have a need in the future for your money, choose a certificate of deposit term that works for you within that time frame. Another option might be a simple money market account.

How safe is a certificate of deposit investment?
Most banks and credit unions are federally insured by the FDIC (Federal Deposit Insurance Corporation). What that means is that all investments up to $100,000.00 are protected and guaranteed. The bottom line is your money is safe. If you have more than $100,000.00 to invest you would want to consider multiple certicates of deposit.

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