Financial Tip Friday- CDs 101

CDs 101-the image of a shiny disc may immediately come to mind, however investing in a CD can be worth more than the latest soundtrack.

Financial Tip Friday is brought to you in partnership with the 1st National Bank of Dennison

CD stands for Certificate of Deposit.  It is essentially a savings account that holds a set amount of money for a period of time that the investor gets to determine upon investing.

CD Rates

CD rates change frequently with each institution issuing them.  The set period of time it is held in aCD account can be called “term.”  There are a variety of short and long-term periods one may invest their CD in and each one has separate interest rates.  Terms can range from 6 months to 1 year or 5 years.  First National Bank of Dennison posts weekly CD and IRA rates online here.  See below for an example of terms, minimum deposit ranges as well as rates that are different for each institution.

How CDs Work

One may invest in most CDs at a local bank, credit union, or investment agencies.  When one cashes or redeems the CD at the end of the term, you will receive the original amount of money invested plus interest earned.

It is recommended to verify that the institution you are investing a CD with is FDIC insured.  FDIC typically insures CDs up to $250,000.

Why invest in a CD? CDs 101

CDs are an option to save money that one would not need for a set period of time.  Historically, CD’s had higher interest rates compared with regular savings accounts.  Saving for a special project or a present where the money is not needed for current expenses is perfect for a CD.  When a CD opens- it does not act as a checking or savings account.  This is because the money that is in there is not fluid.  You cannot withdraw or deposit into the CD.  There are fees or penalties if you end the term of the CD early to collect the money. Some institutions do not allow one to keep their earned interest if they do not keep the CD open the full term they committed to.

Listen!

The Federal Deposit Insurance Corporation has a youtube channel and created a video to explain more about CDs 101.

 

 

Financial Tip Friday

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