Much like a savings account, a certificate of deposit (CD) accrues interest on your personal investment and is federally insured. A CD differs from a savings account in that most CD types do not allow you to take your money out early – unless you do not mind paying a stiff penalty. If terms are to your liking, read on to learn about some of the most popular CD options. Post resource – Choosing the certificate of deposit that is right for you by MoneyBlogNewz.
CD
It’s easy to get a traditional certificate of deposit. The customer deposits a fixed amount of money for a specified term (from three months to five years) at a predetermined interest rate. The money and interest can be taken by the customer as the CD matures or it could be put in another CD term that exists. Customers are allowed to add to CDs the majority of the time whenever they want at banks and credit unions. The downside is that the early withdrawal penalty can eliminate interest and cut into principal. A minimum penalty level, not maximum, is controlled by federal regulation. Some financial institutions charge more. This can be a choice they have.
Bump up CD also accessible
You are able to get a higher rate of return when there’s a bump-up certificate of deposit purchased for flexibility. It pays to know the going market interest rate for a CD, so you are able to tell your bank to give you the bump-up. The trade-off when in contrast to a traditional CD is that a bump-up CD may begin at a lower interest rate than a traditional CD. No more than one bump up is allowed every term. This is a typical rule.
Paying a withdrawal penalty
You are able to withdraw your money in a liquid CD. The rule typically demands a minimum balance while requiring that you do not touch it for at least seven days. A maximum number of withdrawals per term are typically in the rules although you will find penalty-free withdrawals typically. Generally, the liquid CD will have a lower rate of interest because of convenience. A traditional one may work better for interest. If you want the professional management of a liquid CD, try a Brokerage CD. It could have a higher interest rate than a CD that is standard at banks.
Got at least 10 years? Do a zero-coupon
Some people just want long term CDs. A zero-coupon CD is just that. At least 10 years are needed on a zero-coupon CD. The term doesn’t have payments that occur directly. That money is re-invested, then back-loaded at maturity. It is explained by Bankrate.com in an example. You may have 6 percent interest on a $100,000 CD for 12 years. Opening the zero-coupon CD might cost about $50,000. By the end, it will get to $100,000 though.
Keep in mind that a zero-coupon CD may trigger you to be credited with phantom income at tax time, even though you will not have access to the funds. Interested in more CD information? Bankrate.com is the place to go.
Citations
Bankrate
bankrate.com/finance/cd/what-type-of-cd-is-best-1.aspx
Bankrate
bankrate.com/cd.aspx
What is a Certificate of Deposit
whatisacertificateofdeposit.com/
Wikipedia
en.wikipedia.org/wiki/Certificate_of_deposit
How to calculate a CD
youtube.com/watch?v=V1kYrm7MgYs
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