Great Financial Opportunities from CD Accounts

A certificate of deposit, or CD accounts, is a type of savings account. When issued through an FDIC (Federal Deposit Insurance Corporation) account, these funds are insured and as such, are virtually risk free. There are, however, a few significant differences between a traditional savings account and  CD accounts. In typical savings account, the account holder may withdraw funds at any time with no penalty. Money placed into a CD account is deposited for a specific time frame. That time frame may vary from one month to several years. The upside to this type of account is that the CD accounts will generally pay a higher interest rate than a standard savings account.

As with most bank accounts, rates and terms may vary from bank to bank. Something to keep in mind is that while larger CDs should come with a higher interest rate that is not always the case. At most financial institutions, personal CD accounts receive higher interest rates than do business accounts.

Smaller financial institutions and credit unions will often offer higher interest rates than banks. Although credit unions are not typically members of the FDIC, these accounts are generally safe. Credit unions insure their accounts through the National Credit Union Association (NCUA). It is important to note that not all banks and credit unions are members of these insuring organizations. Those institutions that do not belong to either the FDIC or the NCUA may offer higher interest rates on certificates of deposit.

Banks and credit unions will generally require a minimum deposit for CDs. Larger deposits will usually earn larger interest rates. Jumbo CDs, usually $100,000 or more typically receive the best rates on the market.

Consumers may have the option of having the interest earned mailed to them periodically. Others prefer to have the interest deposited directly into an existing checking or savings account. When this interest is paid, there is no compounding and the total yield is reduced.

Certificates of deposit were created as time-specific accounts. Consumers making a withdrawal before the CD matures will be subjected to a substantial penalty. It is not in the customer’s best interest to withdraw funds prior to the maturity date. When CDs mature, the financial institution will typically advise the CD holder of the approaching maturity date. The customer can then withdraw the principal and accumulated interest. Another option is to “roll it over” or deposit the principal plus interest into a new CD. If customers do not notify the bank of their wish to withdraw the funds, it may be automatically rolled over to a new CD. Customers must be diligent and adhere to the bank’s rules regarding rollovers.

Individuals who have some cash to save can earn substantially more interest with CD accounts than with a traditional savings account. However, it is imperative that customers be aware of any penalties for early withdrawal. Consumers who may need quick-access to their money may want to consider a shorter-term CD.

CDs offer individuals the opportunity to earn a nice return on their investment. However, the interest rates and penalties can vary depending on your particular savings institution. CD accounts are a great financial opportunity. However, with so many banks and credit unions all offering different rates and having their own regulations, you may need some help deciding which CD is best for you. We can help you find the best bank to provide you optimum results. Our website can provide you with interest rates, rules and customer reviews for a large number of banks. It is your money. Let it work for you.