Certificate of Deposit
A way of earning interest on the money you are saving by locking it away for a certain period of time
Called Certificate of Deposit because banks give you a certificate stating
- Amount you deposited
- Interest rate
- How long the money must remain in account
CDs keep you money safe while earning interest
However, if you try to take money out, there will be penalties
How Do CDs Work?
- Buy a CD at a certain price
- Interest will compound (grow) annually
- CD will earn money for just sitting there
- At the end, the CD will mature. You’ll receive your original amount + Interest
So if you purchase a
- $10,000 CD
- 4% interest rate
- 1 year term
After a year, you’ll receive
- $10,400
($10,000 x 1.04) = $10,400
Pros
- Considered very safe
- Fixed or variable interest rates
- Easy to open
Cons
- Low liquidity
- Low interest rates
Should I Invest In a CD?
- Can you set money aside & not touch it?
- Do you need portfolio stability?
- Do you already have emergency funds?
- Can you handle loss on inflation?
If you answered “yes” to all of these questions
You are ready to start investing in CDs!
Added Bonus
In the United States, unlike in other countries, deposits are protected by the FDIC (Federal Deposit Insurance Corporation)
Good luck
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