Certificates Of Deposit: Conclusion
Let's recap what we've learned in this tutorial:
- Safety is a hallmark of the traditional certificate of deposit (CD) sold by a bank or credit union.
- Investors seeking a low-risk investment expect that many CDs, when held to maturity, will return the full amount of the original investment, even if the institution issuing the CD collapses.
- A federally-insured bank CD has the backing of the Federal Deposit Insurance Corporation (FDIC), and CDs at credit unions are often guaranteed by the National Credit Union Administration (NCUA).
- Traditional CDs typically yield returns greater than the rates offered by other insured investments, such as checking and savings accounts.
- Rates vary from CD to CD, but they are near the current rate of inflation, in general.
- While traditional CDs are popular with investors, CDs are also available in a variety of configurations offering a range of features and investment strategies.
- The basic elements include the amount of deposit, the rate of interest (or return), the frequency of calculating interest, and the time frame (or term) marking the duration of the account.
- In exchange for not withdrawing the investment or earnings during the term of a basic CD, the investor receives a fixed rate of interest – an interest rate that does not change for the entire period.
- Sometimes, a minimum deposit amount is required, with larger deposits paying higher interest rates.
- Penalty fees usually keep investors from withdrawing money from the account before the agreed-upon date.
- Building on the basic model are CDs with many features.
- Add-on CDs, bear CDs, brokered CDs, bull CDs, bump-up CDs, callable CDs and fixed-rate CDs are some of the options.
- Other options include index-linked CDs, jumbo CDs, liquid CDs, uninsured CDs, variable-rate CDs, Yankee CDs and zero-coupon CDs.
- The strategy an investor uses in choosing a particular CD from all of the options has to do with how the money in the CD will be used and what place it has in the investor's overall portfolio.
- CDs can be used for short-term storage, long-term storage, income generation, conservative growth, speculation, hedging and more.
- Examining the terms and conditions of a potential CD is key to selecting the best investment.
- Investors can locate the right CD for their needs by taking all of the details into consideration.
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