The benefits of investing in certificate deposits
Looking to invest your funds in a way that combines security and good returns? Then CDs meet your investment criteria. A CD (Certificate of Deposit) is a savings certificate that has a fixed rate of interest, maturing on a fixed date. Generally issued by commercial banks, they are insured by FDIC (Federal Deposit Insurance Corporation) up to $250,000 per individual.
The assured interest, combined with the safety net offered by FDIC, makes CDs an attractive investment opportunity.
What Are The Benefits Of Investing In CDs?
Security: Investors want security of the principal sum, and CDs meet this requirement. The biggest benefit of investing in CDs is their FDIC security. When you purchase a CD from a bank, they insure to the extent of $250,000. If you hold CDs with more than one bank, then each bank’s account is insured to the cap limit of $250,000.
Quantifiable Returns: The best thing about CDs is that you know the returns your investment yields, as the rate of interest is fixed from the time of investment. This enables you to plan your cash flow. You can make a CD investment for a specific purpose, such as paying for your wedding or paying for your child’s education.
Variable Period of Investment: You can invest in a CD for any length of timeâ€”from one month to a maximum of five years. The interest rates on long term CDs are the highest. Banks/credit unions are most likely to offer high interest rates if you’re ready to make a long term investment. Depending on your cash needs in the future, you can invest in a short or long term CD.
Further, there is no restriction on the amount of investment.
CD Interest Payout Options: Your investment in a CD earns you interest. You can either take it in the form of a check or have the interest transferred directly to another account. If you want to reap the benefits of compound income, you can choose to have the capitalized payment reinvested automatically. This monthly compounding income increases the interest you earn, increasing your return on investment. A long term CD with reinvestment option can fetch you attractive returns on maturity.
Where To Make Your CD Investment?
A CD can be purchased through a bank, credit union, brokerage firm, or any other financial institution. The rates offered differ among banks. If earning high returns is your goal, then consider credit unions. They offer the highest interest rates on CD. Credit unions pass their profits on to members, making it possible for CDs with credit unions to earn higher returns.
Of course, there is a trade-off between returns and risk. A high return entails an equally high risk. If you’re keen on safety, bank CDs are the best, as they are secured by FDIC.