Certificate of Deposit accounts are a very safe environment for you to put your money in. Learning more about CDs is a great idea if you want to make your money work for you while keeping it safe.
There are two things that you need to know about CDs right up front. One is that they require you to leave your money in the bank for a certain amount of time. The other is that they generally have a higher interest rate than other savings accounts.
If your bank has a good interest rate on their CDs, this is great! You can keep all of your money in the same bank. If you aren’t sure whether your bank has a good rate, don’t be afraid to do some shopping around.
When you open a CD you will be given an option of how long you want to leave your money in the account. Anywhere from three months to six years are normal options. Generally, the longer period of time that you choose, the higher rate you will be given.
The reason banks do this is because if you give them you money to hold and you promise to not take it out before the end of the term, they can take that money and invest it. This makes them a lot of money. So, they are willing to offer you a high interest so that you will choose to leave your money with them for a long time.
Another requirement that banks generally have for opening certificate of deposit accounts is a minimum deposit. While this varies from bank to bank, an amount such as $500 is not unusual. While you have your CD, you can add more money to it. These requirements will be gone over before you actually open the CD, so you will know exactly what to expect.
Something else that you need to find out when talking to the bank is how often interest is paid out on the money in their certificate of deposit accounts. Many banks pay interest monthly, but others might pay quarterly. Find out if the interest compounds as well. Compound interest is great because you get money for interest that has already accrued in your CD.
A lot of banks will give you the option of having the interest deposited into another account, such as your checking, but if you are trying to make and save money this isn’t recommended. Letting the interest add up and compound can make quite a bit of money over time. Also, if you choose to take the interest out, the bank might not give you the best interest possible.
After the agreed-upon time period is up, certificate of deposit accounts reach “maturity” and your money is available to you again. You will usually have 10 or 15 days to decide what to do with your money before the account “defaults.” See what the default is when you open the account. For most banks it is to roll the money over into an identical CD.
Look into certificate of deposit accounts and see if they seem like an investment method that is right for you.