:: The Beginner's Guide to Managing Money ::

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CDs

> Overview

> Selecting a CD

> Tips & Common Mistakes

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DEFINITION:
An investment product that pays a fixed interest rate for a specific length of time. During that time, you lose access to your money.

PROS:
Higher interest rate than with checking or savings accounts; guaranteed interest rate for set period; almost risk-free

CONS:
Interest rate may be high or low; rate may not keep pace with other investments

Overview

A certificate of deposit (CD) is an investment where you receive a fixed rate of interest for a specified period of time. CDs are available through banks, savings and loans, credit unions, and brokerage firms. Access to your money is restricted and may not be available unless you pay an early withdrawal fee. CDs usually require a minimum investment that is higher than checking or savings accounts.

When you invest in a CD, you receive a fixed rate of return on funds that are invested for a specified length of time. That’s why CDs are viewed as a fixed-income investment.

The CD is one of the safest investments you can make. Generally, your investment is protected by the FDIC. Brokerage firms usually offer CDs that are covered by the FDIC. These firms are also covered by insurance through the Securities Investor Protection Corporation.

Selecting a CD >>