A certificate of deposit (CD) resembles a savings account, in that a customer makes a federally insured, interest-accruing financial institution or credit union deposit. Unlike a savings account, however, a CD doesn’t allow early withdrawal without penalty. With some basic information, deciding on the CD that’s right for you is simple and pain-free. Resource for this article – Choosing the certificate of deposit that is right for you by MoneyBlogNewz.
Certificate of deposit
The certificate of deposit is a simple concept. It’s simple to get. The customer deposits a fixed amount of money for a specified term (from three months to five years) at a predetermined interest rate. Once the CD comes to maturity, the customer can either cash out the money with interest or roll it into another CD term. Most banks and credit unions allow customers to add funds to a CD at any time. There is an early withdrawal penalty. This usually eliminates interest and is taken from the principal balance. There is federal regulation for minimum penalty levels. There is no maximum level regulation though. Financial institutions can charge more if they want to.
What a bump-up CD is
For added flexibility, a bump-up CD enables you to opt for a higher rate on return, even mid-term. You are able to get the bank bump-up as long as you know the going market rate for CD interest rates. There is one problem with it though. The traditional CD has a trade-off rate lower than that of a regular CD at first. Every term, only one bump-up is allowed.
Go with the flow and stay away from withdrawal penalty
A liquid certificate of deposit enables you to withdraw money from your account, so long as the money invested at account inception remains untouched for at least seven days (the federal minimum; banks’ rules vary) and a minimum balance is maintained. Typically the liquid CD will allow penalty free withdrawals. You will find a maximum number of withdrawals per term in the agreement though. Generally, the liquid CD can have a lower rate of interest because of convenience. A traditional one may work better for interest. If you need the professional management of a liquid CD, try a Brokerage CD. It could have a higher rate of interest than a CD that is standard at banks.
There is the zero-coupon choice
A long-term CD option is the zero-coupon CD. At least 10 years are needed on a zero-coupon CD. The term does not have payments that occur directly. There is an investment done with all the money. At maturity, it’s all back-loaded. At 6 percent interest, you may get a 12 year, $100,000 CD, says Bankrate.com. The balance will end up at $100,000 by the end of it even though it could only cost $50,000 to open the zero-coupon CD.
Even though you do not have access to any zero-coupon CD funds, you may end up paying phantom tax on it yearly. For the most up-to-date information on the top yields for CDs; have a look at Bankrate.com.
Citations
Bankrate
bankrate.com/finance/cd/what-type-of-cd-is-best-1.aspx
Bankrate
bankrate.com/cd.aspx
What is a Certificate of Deposit
whatisacertificateofdeposit.com/
Wikipedia
en.wikipedia.org/wiki/Certificate_of_deposit
How to calculate a CD
youtube.com/watch?v=V1kYrm7MgYs
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