Asset Focus: Certificate of Deposit
As part of a new series that discusses different asset types, I’ll be talking about Certificates of Deposit, which are commonly known as CDs.
If you’re interested in learning more about CDs and how they could fit into your investment portfolio, then read on, and I’ll explain.
What Is A CD?
Offered by most major banks and credit unions, a Certificate Of Deposit is similar to a savings account. Investors pay in a lump sum and agree to leave it untouched for an agreed-upon period.
In return, the bank pays interest every month. The interest rate is usually higher than average, which means that you can earn a healthy return if you choose to invest in a CD.
How To Invest In A CD
Opening a CD is similar to opening any other type of bank account; first, you have to shop around and explore all of the options to find the best one for your portfolio.
Then, you agree on terms with your chosen bank or credit union. These include the duration of the CD (typically they run for anything from 6 months to 2 years), deposit amount, and any early withdrawal fees that you might have to pay if you remove your money before your term is up.
Once your CD has matured, you’ll be able to withdraw your money from the bank without paying any penalty fees. Make sure that you’re comfortable with all of the terms of your CD before you open it so that you don’t incur early withdrawal fees and reduce your return on investment.
What Are The Returns For A CD?
As banks provide them, the interest rate you get when you open a CD depends on the provider’s set interest rate. The current economic situation decides these rates, and as the world is currently in the grip of a crisis, you can expect a low rate for the next few years.
Moving forward, if the economy improves and banks start to raise interest rates, then you could see increased returns. However, CDs offer the benefit of providing a monthly payment. As such, despite the low-interest rates, anyone who wants to earn a regular monthly income can benefit from opening a CD.
What Are The Risks?
Investing in any asset type is a risk, but CDs are low-risk because a bank provides them, and as such, the Federal Deposit Insurance Corporation protects them, provided that the amount is $250,000 per depositor.
Conclusion And Resource List
As I’ve shown in this article, CDs can be the perfect choice for risk-averse investors who want to receive a monthly return.
If you’re interested in finding out more about CDs, and where you can find the best rates, then check out these resources:
Even relatively safe investment options like a CD come with a risk, which I’ve outlined above. When choosing a CD for your investment portfolio, check out all the options before you invest, and stay up to date with the latest developments in the financial landscape to ensure that you’re able to make the informed decisions.
Garnaco’s blog offers a range of articles on topics ranging from private lending to choosing investment vehicles that pay a monthly income so that you’re always able to make the best choice for your financial health.
You can access the entire Asset Focus Series here.