How to Invest in a Money CD

Invest in a CD

A CD or certificate of deposit keeps your money safe until you need it. A CD pays better interest than a savings account in return for tying up your money for a set time. Conservative investors should keep some cash in CDs to balance riskier investments. You can easily buy a CD from your choice of bank or other institution by following these steps.

Instructions

1. Set aside the sum of money you wish to invest. Most CDs require a minimum investment of $500 to $1,000. However some banks offer CD accounts with a lower minimum of $100 to $300. Special jumbo accounts pay higher interest rates for amounts over $100,000.

2. 

   Choose a bank.

   Choose your bank, credit union or lending institution. You want to consider interest rates, terms and minimum deposits. Check out banks in person or on the Internet. Also compare interest rates in your local newspaper, at bankrate.com, and in financial magazines such as "Smart Money." Jane Bryant Quinn, author of "Making the Most of Your Money," suggests "100 Highest Yields" as another source. Don't forget to consider Internet-only institutions.

3. 

   Choose a term.

   Choose the term for your investment. Most institutions offer terms from three months to five years. However, some banks offer shorter terms or allow you to pick the exact number of days until maturity. Most of the time longer-term accounts pay higher interest. But you will have to forfeit interest as a penalty if you close the account before the term is up.

4. Make sure that the FDIC or NCUA (credit union) insurance will cover your entire investment. Financial institutions sometimes offer products that resemble CDs but do not include insurance. In recent years, insurance coverage has varied from $100,000 to $250,000 depending on the year and type of account, regular or retirement. If you open a long-term account of up to five years, make sure your entire amount, plus interest, will always be insured.

5. Divide sums that exceed the insurance amount among different institutions. As long as the amount at each institution is under the maximum, insurance will cover your deposits. Alternately, insurance will cover additional accounts at the same bank if you title them properly. Get professional financial advice so you don't make a mistake in titling your accounts.

6. Have your Social Security number and other personal information ready when you open your account. You will also need general information such as your name, address, phone number and birthday.

7. Go to the nearest branch if you choose to open an account in person. Bring your deposit in cash, personal check or cashier's check

8. Open your account at an out-of-state bank or Internet bank online or through the mail. You can apply for the account and transfer money online. Or you can request forms through the mail and mail your check.

9. 

   Mark the maturity date on your calendar.

   Take note of the maturity date of your account and mark it in your calendar. Reinvest your money, or take it out when the account comes due. Usually, you will receive a notice, but don't count on this. If you don't do anything at maturity, the account will roll over automatically. You might not want the rate you get. Stay alert, and stay in control of your own money to profit most from investing in a CD.

Tips & Warnings

• You can also buy CDs from a brokerage firm. Make sure you personally have full insurance coverage.

• Watch for advertisements for special CD accounts. Some of these allow limited withdrawals, offer possible rate increases, or have other special benefits. These hybrid accounts, which Jane Bryant Quinn calls "designer" accounts, often resemble savings accounts, but they usually offer better rates.

• Try dividing your money into several batches to ladder your accounts. Open one for one year, one for two years, and one for three years, for example. You will have access to part of your money when each account matures.

References

• "Making the Most of Your Money"; Jane Bryant Quinn; 1997
• "The Little Book of Main Street Money"; Johathan Clements; 2009

Resources

• Bankrate.com
• Hotstocked.com: 100 Highest Yields
• Smart Money