Certificates Of Deposit

A Certificate of Deposit, better known as a CD is a little bit different than any of the other savings methods we have discussed thus far, because until now all of the other accounts we have reviewed still allowed you access to your funds, even if that access is limited. The main thing about putting your money into a Certificate of Deposit is that whatever money you put into the CD you will not be able to get out until the term is up. Now, of course, in the case that you absolutely needed to you could withdraw it, but not without having to pay some very steep penalties. You purchase Certificates of Deposit in specific denominations and for specified periods of time. At the end of the term, you can get your money back with interest that is not a whole lot better than that of a Money Market Account, but definitely much better than any savings account can offer you. Terms for maturity can go from a short as 3 months up to years and years for CD’s, and naturally, the longer the term you choose to leave your money in the bank’s account, the higher the interest rate you will be paid when your certificate has fully matured. The ability to choose the length of time you want your CD to mature can also help make it a little easier you get started.

Start yourself out with a three month CD. Make sure that you can live without that money for those three months. If you make it, roll it over into a 6 month CD, then maybe even a year. Certificates of Deposit can be a fantastic way to let your money grow for you, but you need to be sure that is money that you can part with for a length of time. Going back to the concept of educating our children of bank accounts and finance, CD’s are a good way for them to take some of that savings money they have been socking away in that savings account, unable to touch it, and give them the opportunity to make it really grow. At a conservative rate, taking the $500.00 that your 12 year old has socked away from birthdays and Christmas’ at 1% annually in a savings account that they are unable to touch could be put in a 5 year CD and earn just over $80.00 instead of the $26.00 they might get from a regular savings. Shopping around for CD rates is a good idea, because these interest rates can vary a great deal between institutions. Also many of the strictly online banking institutions will offer higher interest rate payments, and as long as they are FDIC insured, your funds will be safe. It is worth mentioning again that during this term you money will not be accessible to you, so make sure that you can live without it for whatever term you choose. Also important to remember is that once the CD matures and you withdraw the money, you will be responsible for paying the state and federal taxes on the interest money you receive. However you could always consider rolling it over into another certificate of deposit. After all if you lived without the money for that long, perhaps you could roll it into a longer term CD at a higher rate and make even more money. You may find when your money starts to work for you, it is almost like playing slots that you can not lose. Just be patient and the payout is coming, but unlike gambling, it is definitely coming and FDIC insured to be the when it matures.