How to Invest In CD Accounts

The CD accounts, an acronym for certificates of deposit, are a relatively easy and safe way of earning an interest on your cash deposits with a rather low investment return. The banks or similar financial institutions pay you an interest rate for the period in which you have deposited your money into one of their designated accounts. In most cases, your interest rate will not exceed 5%, thus you should not expect a quick large profit from investing in a CD account. However, since the risk of losing your investment is relatively low and the fact that the certificates of deposit are become increasingly profitable once they mature, many people turn to this method of cash storing.

Generally, a person will not be able to access the funds in a traditional cash deposit account until the initially designated term without paying significant penalties. Therefore, you should consider your options thoroughly before you decide on opening a traditional CD account. Furthermore, your interest is subjected to taxes, like any other form of income.  However, the taxes do not apply for IRA or Roth-IRA cash deposit accounts.

Choosing the type of CD account
There are several categories of cash deposit accounts available on the financial market. The traditional type of account comes with a fixed interest that is negotiated prior to signing the contract and does not allow you to withdraw the cash until a specified date without being penalized. If at some point during your contract you are not happy with the rates, you can opt for a bump up, thus enabling you to transfer your money into a more profitable CD account. If you want to be covered in case of an emergency, you should probably choose a liquid certificate of deposit account, which will enable you to withdraw some cash without being penalized by the system. However, a liquid CD comes with a rather small interest rate.

Furthermore, if you are opting for a broker cash deposit account, you will gain access to a large number of options. Since the brokers act as a third party between you and the banks or similar financial institutions, they will be able to offer you a wide variety of offers. Therefore, you can choose the one that benefits your situation the most. Keep in mind, however, that you will need to pay the third party the commission along with the account management fees you pay the bank.

Consider the duration of the deposit
Before actually looking for an account, you should consider the period of time you want the money to be restricted. The whole point of the certificate of deposit account is that you earn money via the interest rate and not pay any penalties to the bank. Deposits with a longer duration pay a higher interest. However, you will want to enjoy the money sooner or later, thus you should ponder on the deposit period.

Criteria on comparing different CD accounts
The most significant aspect regarding the certificates of deposit is the annual percentage rate. The APR is what actually determines the actual gain from your deposit, thus you should first aim to obtain the highest one possible. Although the APR for traditional deposits is a fixed percentage, as the income accumulates in your account the amount of money you earn from the APR increases.

Furthermore, you also need to consider the rates for each CD account before reaching a decision. Since not all financial institutions provide the exact same deal, it is important to compare as many offers as you can in order to choose the most appropriate one.

The safety features of CD accounts
Certificates of deposit accounts are considered a low risk investment since in most circumstances you will receive a money back guaranteed. In the eventuality that the bank where you have your account goes bankrupt, you are insured for a sum up to $100,000. In the situation that your bank is not bought by another corporation, your money will be returned from auctioning the assets of the bank by the FDIC ,or an open line of credit to the National Treasury. However, your interest gains will be frozen once the bank is out of business, thus you will need to find an alternative financial institution.

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