Are you looking for relatively low-risk ways to invest and save money? A certificate of deposit (CD) might work for you.
According to the FDIC, a CD is a “special type of deposit account with a bank or thrift institution that typically offers a higher rate of interest than a regular savings account.” CD’s feature federal deposit insurance up to $250,000 per insured bank, for each account ownership category. (For more information on insurance and ownership categories, read my “FDIC” blog, published March 1, 2012 by clicking this link: http://mysystematic.blogspot.com/2012/03/fdic.html)
When you buy a CD, you give a fixed sum of money for a fixed sum of time – six months, one year, or more – and in exchange, the issuing bank pays you interest, typically at regular intervals. You redeem your CD at maturity – the end of the CD term – and you receive what you originally invested, plus all accrued interest. But if you redeem your CD before it matures, you may have to pay an “early withdrawal” penalty. If the issuing bank fails during the term of the CD, the principal balance of the CD, together with interest accrued at the time of the bank’s closure, is insured by the FDIC up to the applicable deposit insurance limit.
It is important to keep in mind that the types of CDs vary. More banks are offering alternative options to the traditional fixed interest rate CD. Before you consider purchasing a CD from your bank, make sure you fully understand all of the terms and carefully read the disclosure statements.
For more information on what issues you should address and other tips that can help you assess what features make sense for you, follow the link below:
Systematic Savings Bank, Member FDIC
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