certificate of deposit

Reviewed by Vishnava | Updated on Sep 23, 2021

Catalogue

What is certificate of deposit

A savings account that covers a fixed amount of money for a fixed period, is a CD. In exchange of creating this account, the issuing bank gives you an interest. When you cash in, you get the money you invested along with any interest. Certificates of deposit are believed to be one of the most risk-free savings options.

How Does The CD Work?

After you’ve identified which CD(s) you’ll open, finishing the process will lock you into 4 things.

  • The interest rate: Locked rates present a transparent return on your deposit over a specific period. The bank cannot change the rate and therefore it cannot reduce your earnings.

  • The term: This is the time you invest your funds to avoid any penalty.

  • The principal: This is the amount you promise to deposit when you open the CD.

  • The institution: The bank where you open your CD.

Once your CD is established, the bank will manage it like most other deposit accounts, with either monthly or quarterly statements.

  • Promotional Certificate of Deposit (CD) Rate- A promotional certificate of deposit (CD) rate is a greater rate of return on a CD provided by banks and credit unions to attract new deposits.

  • CD Ladder-A CD ladder is known as a strategy in which an investor divides a sum of money into equal amounts and invests them in certificates of deposit (CDs) with different maturity dates.

  • Variable-Rate Certificate of Deposit (CD)- A variable-rate certificate of deposit is known as an investment product with relatively low risk, but it also possesses an interest rate that can fluctuate.

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