Penalties on Certificates of Deposit

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Certificates of deposit can come with penalties if a person decides to withdraw money sooner than the agreed upon ending date. Learn about CDs that don't have penalties with help from a portfolio manager in this free video on money management and personal finances.

Part of the Video Series: Investing & Money Management
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Video Transcript

Have you ever purchased a CD from your bank or brokerage firm? Hi, this is Roger Groh at Groh Asset Management. If you have, you may have been told at the time of the purchase that there was a penalty for early withdrawal. What does that mean? Well, what you've done is to give them money; what they've done is to say, okay, we'll give you your money back in five years or three or two; whatever the time period might be plus some interest. But they want to know that they have that capital for that entire time and setup penalties where if you had to withdraw it early, you would pay a stiff loan. How stiff is stiff? Ten percent. Well, each one is different. You need to read the prospectus carefully to really understand the penalties and if there's a better choice for you to make. There are lots of CDs without penalties that frequently pay the same rate of interest of those that do have penalties. So why go there? You can buy a CD almost anywhere today and you can tell your own bank or brokerage firm to buy it somewhere else. Believe me if they have access to a sophisticated training system and they know all of the CDs that are for sale. Hope that heps. I'm Roger Groh at Groh Asset. Remember, read and shop before you buy.


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