How Much Do You Put Into a Certificate of Deposit?
A certificate of deposit can be an excellent choice for investors who need to put money away without any risk. As long as you stay within the current insurance limits, you cannot lose any money in a CD, but the amount you can make depends on the bank. The amount you can deposit also depends on the issuer, so you might need to shop around for the best deal.
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Coverage Limits
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As of 2011, the federal insured limit for CD deposits is $250,000. This rate applies both to banks insured by the Federal Deposit Insurance Corporation (FDIC) and credit unions insured by the National Credit Union Administration (NCUA). This $250,000 limit covers both principal and interest, so if you invest $250,000 in a CD, your principal would be insured but not your interest. It is important to keep this limit in mind if you plan to take out a very large CD. If you have more than $250,000 to invest in CDs, you can spread the money among several banks, or you can invest through a brokerage firm. Joint accounts can receive insurance up to $500,000.
Minimum Investment
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Each bank and brokerage firm is free to set the minimum deposit requirements for the certificates of deposit they offer. Some CDs cost just a few hundred dollars, while others have minimum deposit requirements in the thousands of dollars. In addition to these minimum limits, banks and brokerage firms can set maximum limits on their CDs. This often happens when a bank offers a high promotional rate on a CD. As the customer, you are free to deposit any amount between the minimum deposit requirement and the maximum allowable for that CD.
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Jumbo CD
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A certificate of deposit with a value of $100,000 or more is known as a "jumbo" CD, and some banks pay a higher rate of interest on these instruments. If you have a lot of money to invest, it is a good idea to ask the bank for information about both traditional and jumbo CD rates. The rates on both jumbo and traditional CDs fluctuate quite a bit, so it is always a good idea to shop around when you have money to invest.
Tax Considerations
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Unless you hold your CD in a tax-deferred account like an IRA, you are responsible for paying tax on any interest you receive. It is a good idea to take these taxes into account, especially if you will be investing a large sum of money in a CD. You may even want to calculate your tax liability based on your expected interest earnings before you invest.
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References
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