Should I Invest in CDs

A CD, or certificate of deposit, can be an attractive investment opportunity for many investors. One of the biggest advantages of investing in CDs is their FDIC security. Additionally, CD interest rates are typically fixed for a specific period of time, so you know exactly how much return you are getting on your investment and for how long.

CDs For Highest Rates

CDs can be purchased with varying term lengths. A CD with a longer term maturity will normally offer a higher CD rate in return for you tying up your funds for a longer period of time. If you are using the CD to help save for a child’s education, for example, and will not need the money for a number of years, then a CD with a longer term maturity and a higher interest rate will likely be your best choice.

FDIC Insurance

Another favorable  feature of owning certificate of deposit investments purchased from banks is that your account is insured for up to $250,000. And, if you have CDs at more than one bank, each bank’s account is insured for up to the $250,000 cap limit.

CD Interest Payment Options

A CD investment can also offer three different payment options for you to receive your interest. First, you can specify that you want to receive your return in the form of a check. A second option is that of transferring your interest directly into another account.

And, a third option is to have capitalized payments automatically reinvested back into the certificate of deposit. This way, the interest on your CD can be compounded monthly, and each month the interest becomes reinvested so that the amount of interest you earn actually increases over time.

CD Interest Rates

CDs may be purchased through a bank, credit union, brokerage firm, or other financial institution. Although many banks offer competitive CD interest rates among each other, you may receive higher CD interest rates through a credit union. This is because credit unions pass their profits through to their members, and thus have the ability to offer slightly higher CD rates of interest.  Also, depending on the interest rate environment CD brokers may offer some of the highest CD rates available.

Special CD Features

Some CDs even offer special options, making them more attractive to investors. For example, some financial institutions may allow you to add money to your CD over time in order to increase the interest that you are paid. Others may allow your CD interest rates to increase if overall rates go up in the future.

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