What Are Bank CDs?

Video Transcript

"Hello, my name is Mark Griffith. This is a brief introduction to how a bank CD works, better known as a Certificate of Deposit, or actually much better described as a Time Deposit. A Time Deposit is an account, usually the bank or sometimes in a brokerage firm, where you agree to have your money tied up for a period. This period can be ten years, fifteen years, twenty years, five years, one year. The point is, that there are penalties for withdrawing your money early or withdrawing some of your money early, so you need to be really sure that you don't need to touch that cash in the meantime. However, if you can actually leave the cash in there, not withdraw it, not undergo the penalties, then you'll find that a Time Deposit, or a Certificate of Deposit, can actually give you a higher interest rate than other available investments at the time. So, as with any kind of vestment, you need to research the competition. You'll find that different banks, different brokerages offer different contracts. Some of them may have penalty clauses, and you should check the small prints. For example, the bank might be able to actually terminate the contract before you want to terminate it. So check if they allow themselves to do that, in the small print. Check, also, the size of the penalties for withdrawal, if you need to withdraw the money before the end of the time. And also check rival interest rates, what is going to be invested in, and how risky it is. You can do this with virtual banks, or you can do it with real banks. If you already use a broker for some other investments, it might make the process simpler if you do it through the broker. But, otherwise, you might find it easier to do through your bank. Remember, if you're putting money in a Time Deposit, you need to be sure that you can leave it there, because there are penalties. And otherwise, if you pay a penalty, you might as well not have gone through the whole process in the beginning. So, if you can leave your money somewhere, or a chunk of money somewhere, and not touch it - really not touch it - then you can earn a reasonable deposit. However, just try to keep in mind that you need to research things. You need to research the different accounts, the different contracts, and you always, always need to read the small print. Ask for help. Banking jargon can be confusing, so don't be afraid to get someone else to interpret it for you. Thank you. Good luck."