How Do Certificates of Deposits Work?

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A certificate of deposit, or CD, is an instrument used by banks to get clients to come in with cash that they want to earn interest on. The interest rate on CDs is often higher if the money if left with the bank for longer. Be aware of penalties for early withdraws of CDs with information from a registered financial consultant in this free video on investments.

Part of the Video Series: Money Management
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Video Transcript

This is financial adviser Patrick Munro talking about, "How do certificates of deposits work?" Certificates of deposit otherwise known as cds are instruments that banks will offer for clients to come in with cash that they want to get an interest rate on. The interest rate varies depending upon the amount of time that you're going to allow the bank to keep the money. You'll get a higher rate of interest on your certificate of deposit if you leave the money with the bank for a longer period of time. In other words the interest rate that you'll be paid on a cd for one year is is less than the interest rate on a cd for three years. If you try to take the money out of the bank before the time before the time on your certificate of deposit has elapsed, there will be an interest rate penalty assessed on your money for the unused portion of the interest plus a certificate charge. So be mindful when you give money to a bank for a certificate of deposit that you cannot go back in and take the money back out. So this is Patrick Munro talking about the different interests rates offered in bank certificates of deposit.

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