A Certificate of Deposit is a secure and reliable savings tool that offers higher interest rates in exchange for committing your funds for a fixed period. It’s an excellent option for those looking to achieve specific financial goals with minimal risk.
Key Features of a Certificate of Deposit (CD):
- Fixed Term: CDs have a specified term or maturity date, which can range from a few months to several years. Common terms are 6 months, 1 year, 2 years, or 5 years.
- Interest Rate: CDs typically offer a higher interest rate than regular savings accounts. The rate is fixed for the duration of the term, providing a predictable return on investment.
- Minimum Deposit: Many CDs require a minimum deposit to open, which can vary depending on the financial institution and the specific CD product.
- Early Withdrawal Penalties: Withdrawing funds from a CD before it matures usually incurs a penalty, which can reduce or negate the interest earned. Some CDs offer more flexible terms with lower penalties or no penalties for early withdrawal, but these often come with lower interest rates.
- FDIC/NCUA Insurance: CDs from banks are typically insured by the Federal Deposit Insurance Corporation (FDIC), and CDs from credit unions are insured by the National Credit Union Administration (NCUA), up to the maximum limit allowed by law.
