How to Invest in CD Accounts

When you decide to invest in certificate of deposit (CD) accounts, make sure to do your due diligence in checking out available options. If you find a CD or two that you are ready to purchase, there are a few things to remember before finalizing your investment.

Instructions

Difficulty: Easy

1. Decide whether you want to invest through a bank or a brokerage firm. While hiring a broker simplifies the investing process, your accounts will be subject to brokerage fees upon CD maturity. If you already have a broker for your other investments, it may streamline the process to use him for your CD purchases, as well. If you decide to go through a bank, you may have to apply in person. Other banks, like Bank of America or Wells Fargo, allow you to securely open your account online (see Resources below).
2. Check out CD accounts available through virtual banks. These banks pride themselves on avoiding construction and building maintenance costs because they exist only in cyberspace. ING Direct and VirtualBank are two cyberbanks that offer a variety of CD options for interested investors (see Resources below).
3. Resign yourself to leaving your money alone for the full CD term duration. Early withdrawal penalties can really zap you if you take your money out before the CD matures. If you're buying a CD, plan for your money to be tied up for an extended time.
4. Fill out the necessary investment forms online or with your broker or bank representative. Remember to bring important information, such as funding bank account numbers, if you're visiting a bank or broker in person.
5. Be careful before signing on the dotted line. Some CDs may have huge penalties for cashing your CD in early, and others may have unreasonable call features. This means that the bank can terminate your CD before the term is up if it is in their best interest to do so. While these penalties and call features may not affect you, it is important to understand all of the investment terms before turning your money over.

Tips & Warnings

• Make a note of your CD maturity date so you know when to cash it out. Many banks will automatically renew your CD on its maturity date if you don't tell them otherwise, and you might miss the opportunity to invest at a new, higher interest rate if the market has improved.
• Contact your broker or bank representative if you have questions about CD terms or specifics. Banking jargon can be confusing, so don't be embarrassed to ask for help.