Investing and planning for your financial future takes a lot of time and research. There’s tons of conflicting information on what’s best and what’s not but if you’re considering investing your money in a CD then here’s a guide that offers a basic overview of how that works.
What Is A CD?
First off, a CD is called a Certificate of Deposit. This is widely considered as one of the safest investment options out there. This is usually for people looking to invest long-term because they have a relatively low rate of return. This doesn’t mean that they’re a bad choice. It just depends on how much money you have to work with and how comfortable you are putting it in someone else’s hands. So for those who don’t want to run the risk of losing their money, CD’s are the safest way to go but just realize that you’re not going to see massive returns like with the stock market or other investment vehicles.
What Does A CD Do For You?
A CD, simply put, pays you interest on the money you’ve put on. It works a lot like a savings account but the money you earn is usually higher with a CD. You want to shop around for the highest Annual Percentage Yield (APY). This is how much interest you earn on your investment. Though a CD is much like a savings account, the difference is that, with a CD, you can’t touch it. Once you put money in, the amount is locked in and if you try withdrawing money before the term is up, you’ll be hit with penalty fees. So before investing, make sure that you don’t need that money for anything else.
How Do You Get A CD?
Starting a CD is very simple. Go to your bank or credit union and tell them that you’d like to invest in a CD. You’ll have to fill out a simple form and sign some disclosures. After the paperwork is done they’ll take your money and put it into the CD. They’ll give you a certificate and some paperwork that outlines the details of your investment. That’s pretty much it.
Managing Your CD
Managing your CD investment is quite simple. At some point your CD, like any investment, will pay interest. From here you’ll have to decide whether to reinvest the interest that’s accrued over time or take it in cash. Once you start earning interest you account will grow faster. It’s far more advisable to reinvest it but the choice is yours.
Maturation of Your CD
When your CD matures, which is when your term limit is done, you usually have a window of about 10 to 15 days in which to decide how to want to manage the account. If you don’t do anything banks will commonly reinvest the money into a new CD. This is only done when there’s no alternative direction as how to proceed with your investment. However, it’s advised that you know your policy and give the proper instructions. The options are to take the money or reinvest it.
This basic overview is to give you an understanding of how a CD works and what to expect. Only you can decide what option you choose to take with your money but this has long been a way for people to invest without worrying about anything happening to their money.
Search with Swagbucks to win gift certificates and prizes - it uses Google and Ask.com to search!
© 2007-2008. Visit I've Paid For This Twice Already... for more great content and to leave a comment!
