If you’re looking for a relatively low-risk yet decently profitable investment, then you should definitely consider certificates of deposit (CD). This type of investment product is quite stable, unlike stocks or cryptocurrencies, which can be extremely volatile and unpredictable. Thus, CDs are going to be much more approachable and easy to learn for those who are still in their early stages of investment.
In this article, we are going to help you learn more about this type of investment by answering some of the most frequently asked questions about CDs. If, after having read this article, you feel like you’re ready to start investing in CDs, definitely check out Marcus CD rates for some of the highest and most profitable CDs in the market today.
What is a CD?
First, what even is a CD? To put it simply, a CD is a type of savings account where investors are going to make a deposit to the bank for a stated amount and for a fixed period of time. Throughout the investment period, this amount will also be earning a fixed interest rate. All these details are duly stipulated in the certificate, which is provided to the investor at the date of deposit. The funds that the investor has deposited will be under the complete control of the bank or credit union, which allows them to use the funds for whatever purpose it may serve them best. At the end of the investment period, the bank shall return the capital, along with any interest that it has earned, to the investor.
How long do CD terms last?
CD terms range from a couple of months to several years. Given this, CDs can be easily set up as short-term or as long-term investments. Most banks offer a wide variety of CD terms to provide plenty of options to their customers. A bank would usually offer their CDs with 3-month, 6-month, 1-year, 3-year, and 5-year options.
What is the interest rate on a CD?
CD rates differ depending on the term of the CD as well as the amount of deposit. Generally speaking, the rate is going to be much higher if the term is longer and if the deposit amount is bigger. Thus, if you really want to maximize your CD investment, go for terms with a longer duration and, if you can, make sure to deposit more than the minimum deposit amount. CD rates will also differ from one bank to another, which is why it’s critical that you, as the investor, should browse and shop around for your options.
Can I withdraw funds from the CD before the term ends?
Yes, you still can. However, you will have to pay certain fees or charges. This is known as an early withdrawal, where the investor pulls out a portion or the entire amount of the CD investment before the maturity date specified in their agreement with the bank or the credit union. These fees are going to be quite significant in relation to the interest rate earnings, which means that the cost of pulling out the funds earlier is going to be quite comparable to the interest rate your investment would earn. This is so that investors will be decentivized in withdrawing funds from their investment.
Note that the charges only apply to the interest that the CD has earned. Therefore, even if you constantly make early withdrawals, you can still recover the entire amount that you initially invested.
What do I do when my CD matures?
Upon the maturity of your CD investment, you are presented with quite a few options. First, you could collect the entire amount through cashout or a direct deposit to your bank account. Here, you will be receiving the entire amount of the principal as well as the interest earnings that you have gained. Second, you could renew your CD term. Here, you will be applying for a new CD term, which can be set at a completely different rate and with different interest rate percentages. This is advisable in cases where you still don’t need the funds.
Finally, you could also collect the funds and start a new type of investment. You could, for example, apply for a CD elsewhere if you manage to find better rates. Alternatively, you could also start looking into other investment products, such as stocks, bonds, etc.