Why Should I Buy a Savings CD?
Buying a CD is one of the many effective ways you can save money. Purchasing a CD is a great investment for those who don't want to take risk but want more bang for their buck. The interest rates are better than traditional savings account, but not high as other high risk avenues. However, the safety that comes with a CD makes this product a valuable asset to most people's overall financial strategy.
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The Facts
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Savings certificates of deposit, or CDs, are time-sensitive, FDIC insured products purchased at most financial institutions. By buying a CD, you are lending the institution money for a specified period of time. In return, your investment will become an interest bearing product. The CD will earn money at a fixed rate until it matures.
Types
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There are many different types of CDs tailored to fit your goal. Time periods that can be chosen range from 3 months to 10 years. As noted earlier, the most common type of CDs are FDIC insured. However, there are CDs that are not backed by the government. Some of these do not have a fixed interest rate and may allow you to withdraw during your time period. Ask your bank or credit union for information on the various types of CDs available.
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Features
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A CD allows you to earn a higher interest on your money than you would from a traditional bank account and government securities such as treasury bills and bonds. It falls short when compared to high end investment options that take on more risk. You can purchase a CD up to the FDIC limit of $250,000 and the government will guarantee the funds.
Benefits
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This savings vehicle has several great uses. Fund a retirement account or a child's tuition, or use it to put a down payment on a house. Put money away for a vacation, a car purchase or to build cash flow. The protection it has from the government makes it a valuable product to invest in. The flexibility of the terms leaves you in control of your money.
Considerations
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A CD is a contract between the purchaser and the bank. Before purchasing, there are some issues that you should look into. If you are planning to buy one, make sure the money you deposit won't be needed during your time period. There may be penalties for withdrawing money before the maturity date. Check the terms and conditions before you take action.
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