If you are planning to invest in a certificate of deposit, you need to have a proper understanding of the scheme and how it works. A CD is like a savings account but with a predetermined interest rate and deposit period.
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But unlike the regular savings account, where the depositor has the option of withdrawing the money anytime they want, the CD locks the amount for a certain period of time, and the depositor cannot withdraw the money during the deposit period. Once the period is matured, the depositor receives the deposited amount along with the interest earned. CDs can be easily purchased through banks or financial institutions.
Why Should You Choose to Open a CD?
CDs are a safe and low-risk investment. The interest rates offered by banks and financial institutions are higher than those on regular savings accounts. Also, if a depositor is willing to invest for a longer period of time, banks offer higher interest rates. Certificates of deposit have become an attractive option of investment for many investors who want to invest a large sum of money that earns them good interest without taking any risk or market volatility.
Why are CDs Better than Traditional Savings Accounts?
Undoubtedly, certificates of deposit are a great kind of investment instrument that involves high interest payments and low risk on investment. It allows the depositor to put a large sum of money away for a long time and also earn returns on the invested amount. It works similar to the down payments for a home or car, where you keep aside some amount of money for a specific goal in mind, which you do require on a regular basis.
In a regular savings account, depositors can deposit and withdraw money anytime they want. Also, banks don’t offer high rates of interest on money saved in savings accounts. A CD requires a large sum of money to be saved for a period of time, like six months to five years.
Though you don’t have access to your account for that period of time, in return, you get a high rate of interest on the money saved, which is not possible with a regular savings account.
Hence, it is safe to say that it is a better investment option than a savings account. CD calculators, like NSC calculators, are available online to show you how much return you would receive on your investment.
What is the Best Time to Invest in a CD?
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If you have earned a lump sum amount that you don’t need for some time, like saving for a car or a vacation, for that purpose, a certificate of deposit is a good option. There are other options like stocks or mutual funds, but then they involve high-risk, and you can also lose money.
Though the returns on CD are not as high as those you receive in stocks or bonds, they also don’t carry the risk of investment. It is also a perfect option for people who don’t have the discipline to save money on a regular basis. Since the money is locked for a duration and there is an associated penalty on an untimely withdrawal, it is often easy to save money with certificates of deposit.
How Can You Get a CD?
Almost all banks and financial institutions have the option of issuing CDs. You can visit the bank, or you can buy it online. If you are planning to buy a CD online, you can also compare the interest rates offered by different banks on the internet and choose the one that best suits your financial needs. Like FD and NSC calculators, CD calculators work the same way.
Every bank offers a different interest rate. Therefore, it is not logical to just go to the bank you are dealing with. It is always a good idea to research and compare rates before making a decision, especially when you can sit in the comfort of your home and make comparisons without running around. There are many tools available online that can assist you in your search.
In case you want a deeper understanding of certificate of deposit and other investment instruments, you can check out Investment Simplified. It is a platform offering guidance and valuable information of several financial topics. Check it out today!