CD’s or Certificate of Deposit is another way for bank customers to park their funds and save their hard earned money. It is another type of bank product offered to savings account holders that allows them to deposit a fixed amount of money with a designated interest rate over a period of time. At the end of the agreed upon time to hold the savings, the customer has the option to withdraw what they saved plus interest or allow it to be rolled over to another CD.

Both bankers and customers alike benefit a lot from this method because bankers are guaranteed to raise short term capital. At the same time, the customers have another way to save and let it earn interest while it stays with the bank.

Here are a couple of basic things you should know about your certificate of deposit:

1) A larger initial deposit has better chances of earning a larger interest rate.
2)The longer term or period it stays with the bank the higher interest rate you will receive.
3) Some small institutions may offer more than what a larger bank can give.
4) Business accounts earn considerably lesser than most personal accounts.
5) Banks and other financial institution that are not covered by the FDIC generally offer a high interest rate.

Although there is very little liquidity, a certificate of deposit is considered one of the more secure investments but it comes with a low interest rate. It has gotten a little tough these days to earn higher interest rates, especially since the Federal Reserve has driven the rates down. Commercial banks are charged a little lower than before by the government-controlled banks. And for as long as this continues, banks will also continue to reduce interest rates on your certificate of deposits.

However, the economy might just begin to do well and when that happens, interest rates on CDs will also shoot up. Since we are not sure when that will occur, we could choose the best yield on our CD’s with a term of no longer than 6 months to a year. That way, you can jump to a better offer once your CD matures.

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