Credit Union CD Risk
Before you invest your money in a certificate of deposit from a credit union, be certain you understand the risks. While credit union CDs are typically safe investments, there are a few risks involved.
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Definition
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A certificate of deposit (CD) is a special type of deposit account. Your credit union can issue them in the same way other financial institutions do.
Time Frame
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While the benefit of buying a CD from your credit union is better interest rates, there are restrictions. You commit to holding the CD for a set time, so you risk paying a penalty if you withdraw funds prior to the CD's maturity. Get the maturity date in writing.
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Considerations
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Not all credit unions are fiscally sound. You could risk financial loss if you buy from an unstable credit union. (See rating system in the Resource section.)
Insurance
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Be certain your funds are covered by National Credit Union Share Insurance Fund,. To determine which of your funds are covered, use the National Credit Union Administration (NCUA) online calculator (see Resource section).
Warning
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Ask if the CD has a call feature. A callable CD is one in which the credit union has the right to cancel (or "call") the CD if interest rates fall after a specified period. You'll receive your principal and any interest you've earned; however, you'll be left to reinvest your money at lower interest rates.
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