What is a Certificate of Deposit (CD) Account?

Certificates of Deposit are actually quite different when you compare them to traditional savings. Sometimes a CD is considered to be a time deposit and generally provides you with an option to save or keep your money for a particular period of time that is set.

In a savings account, you’re free to either deposit or withdraw cash according to your preferences. In a CD, you have a term range of approximately three or five months, and can sometimes be a few days or even a decade according to your preferences.

If you want to commit to keeping your cash in an account, then you should choose a time length that is more longer. If you keep your money for a longer time length , you also get to earn more Interest.

Penalties
There are various penalties that you receive in a CD, when you perform various actions. If you choose to withdraw cash before your CD fully matures, you will definitely receive a particular penalty in form of charges. In most cases, you’re required to give up to six or three months of any interest that you have earned.

Before you perform any withdrawal, it is very important for you to fully understand the penalties that you receive for any early withdrawals. You will mostly find that losing any interest that you have earned generally outweighs advantages
or benefits of making early withdrawals.

Rates
The credit unions and banks also reward customers who decide to keep money with them for longer periods of time. You will basically receive more returns on the certificates of deposit ( CDs).

Rates are mostly compounded by credit unions and banks on a daily, monthly, quarterly or even a yearly basis. If you have a three year CD in a bank and you decide to withdraw some cash, the rate is approximately 0.49 percent. Most credit unions and banks mainly provide you with rates that are approximately above one percent.

However, it is worth noting down that in the CD market, it is actually very possible for rates to change on a weekly basis.

Types Of Certificates Of Deposit
Depending on the bank that you use, you have the option of choosing the particular CD that you want. Below are some types of CDs that you can choose from.

– No penalty or low penalty when you withdraw your cash early. These certificates are commonly known as liquid CDs and generally provide you with lower return rates when compared to other CDs. All you have to qualify for this CD is to maintain a balance that is minimum.
– Jumbo CD. This CD is actually very similar to regular CDs and the only difference is the minimum balance requirement that is generally a bit high.
– CDs that have a rate that is variable. This particular CD is mainly determined by treasury bills, the market index and also prime interest rates. This CD mainly varies according to the institution you use and allows you to benefit from any increase in rates that may occur in future.

These are some of the few types of CDs that you should know to help you choose the right one that suits your needs. Certificates of deposit are very important because you’re able to get security by having the federal government backing up your savings.

 

 

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