Certificate of deposit is an account where you are guaranteed a rate of deposit for a set time, usually three months to five years.
At the end of the duration the funds will rollover into a new CD depending on the terms and conditions. You can adjust if the funds will be rolled over or moved to an another account. Normally it should be done before the end of the duration. This is a secure and reliable investment option to have funds grow at a consistent rate. The investment is predictable and sustainable, although is not suitable for everyone.
Certificate of deposits are FDIC insured, which means if the bank fails the FDIC will protect the money up to $250,000. The interest rate pays higher than a traditional savings account or more high yield savings accounts. Although, CD account rates are locked in.
If you do end up needing the money sooner, there can be penalties, so review the terms and conditions of who offers the CD. Typically, the minimum deposit to open a CD is $500, the minimum does change depending on the rate and financial institution offering.
When considering CDs realize there are short-term and long-term CDs. Short-term is anything less than a year, taxes owed at maturity. Long-term is anything greater than year, taxes owed each year as they accrue.
CDs grow slowly compared to many other investments but provide security. This type of investment is not for everyone but is a good tool to balance risk. Before deciding contact your investment and tax professional to guide you in the direction that fits you best.
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