What is a certificate of deposit? One might ask. Certificates of deposit, also known as CDs are products provided to clients by financial institutions when you are looking to have a fixed savings account. These are also documents that will allow you to enjoy benefits and earn yourself some interest as you wait for the time when you’ll get some great bucks. Saving is not only a requirement but a prerequisite. You need to have something saved up for the future or have an emergency fund when you have had pressing issues.
A certificate of deposit can enable you to deposit a certain sum of money. It will also allow you to wait it out until the time you have decided you want to withdraw these sums of money. There is a lot to learn about certificates of deposit. Here are four things you probably don’t know about CDs.
1. There Are Various Types Of Certificate Of Deposit Accounts
Most people don’t know that there are a handful of types of CD accounts. It’s not every day that you’ll find people looking up CD accounts whether online or offline. Luckily, you are here and interested to know more about Certificates of Deposit. You need to take a peek at https://moneymash.com/best-cd-rates to know what your money is worth as well as calculate your risks while at it.
You could use the traditional certificate of deposit where you put in a specific amount for a specified timeline while earning yourself a regular interest rate. Other types include:
- Liquid CD accounts – These are accounts that will allow you to make withdrawals at different times without having to be penalized for the same. However, some banks might allow this as a privilege of sorts. For instance, when you maintain a constant amount of deposits.
- Callable CD accounts – This type of account offers you higher interests at the beginning as a bonus or discount because your certificate of deposit was called back. Nevertheless, such an account gives the bank the right to lower the profits, discounts, and bonuses as time progresses.
- A called back CD account – This simply means that your financial institution can allow you to claim the account’s maturity
- Bump-up CDs – This is an account with a low starting interest rate. Nevertheless, such an account will give you the chance to exploit the higher interest rates during the time you use it
2. Regular CDs Aren’t Similar To Individual Retirement Accounts
Now, and don’t get it twisted! Individual retirement accounts (IRA) are different from certificates of deposit. With IRAs, your account can benefit from tax benefits. This is a great idea for anyone looking to make some bucks out of their savings. While both are great retirement vehicles, it’s critical to know what you’ll be making. CDs on the other hand, require that over the agreed time, you’ll have earned yourself a fixed interest. Having such knowledge will allow you to choose the best plans as well as know the amount of money you need to put into your account.
3. CDs Can Be Renewed Recurrently
Whenever you open a savings account, you need to ensure that you’ve informed your bank of what happens to the account. When a CD account has matured, you can simply renew your account and be done with it. There are financial institutions that will spin your current certificate of deposit account into a new one. This is a beneficial cause of action as it allows you to continue saving. The caveat is that not all financial institutions or saving plans will allow such measures. Additionally, CD contracts will not allow you to access your money from time to time after the previous account has matured. Of course, there are the terms of the contract to factor in and these might put some limitations on what you do with your savings.
4. You Can Put Money Into Long Term CDs
Relax, you are not going to lose your money overnight because you’ve decided to invest in a Certificate of Deposit account. There’s a laddering process that will ensure that your account doesn’t lose its liquidity. This is a long-term strategy that can be beneficial as well as offers you great benefits. Also, it could be that you want to enjoy higher rates awarded to those owning a CD account. But before you commit your finances to such a savings plan, conduct some research to ensure that you have the right information. Also, ensure that you’ve checked whether you are dealing with a reliable financial institution.
Having a certificate of deposit account that works in your favor is a great thing. It is like having a voucher that you can go shopping with at the specified timelines. The above is crucial information for anyone looking to open a CD account. You must fully understand the requirements, the contract terms, and the costs involved.