If you’re fairly new to the world of low to risk-free investing, you may feel a bit overwhelmed by all the options out there-especially in the midst of a less than stable economy. You may have heard that one of your best bets for safe investing is CDs (or certificates of deposits), but you don’t know what kind of cd would best suit you. Below, we take a look at the most popular types of cd accounts to help you navigate the present climate of the financial world and invest your money wisely.
Standard Cds
The standard certificates of deposits is comparable to a savings account, but offers you a higher interest rate in return for not touching the funds for a particular amount of time. You can get a standard cd at your local rate, but cd rates are always fluctuating so it is imperative that you always shop around at many banks to secure the best cd interest rates. Most standard cds are offered anywhere from one month to multiple years, and depending on long you let the bank play with your money-you will receive higher and higher interest rates on your principal. Standard cds are FDIC-insured so you will never lose out on your principal or accrued interest, as long as you do not withdraw any part of the sum before the maturity date.
Bump Up Cds
The bump up cd is more of an option from your local bank than a cd-though many institutions will refer to it as a “bump up cd”. Basically, if your existing cd with a bank has a certain interest rate, and the market provides the bank with a better rate on their cds for the same term after you have locked in your cd interest rate, you have the option to “bump up” your interest rate to the new one for the remainder of your cd term. There is usually a maximum amount of times you are allowed to “bump up”, and not all banks offer this.
Callable Cds
A callable cd is a higher yield cd than a standard or bump up cd, because the bank can actually “call” or expire your cd before the maturity date. With callable cds, there is a minimum amount of time that the bank is required not to interfere with your cd-called the “call protection period”, but after which they can-if the market offers them a better rate-drop your cd agreement. The great thing about callable cds, though risky on the amount of interest you will accrue-especially in a financial market such as this one-is that your principal and accrued interest up to that point in time when the bank discontinues the cd is all FDIC-insured, so you will never take a loss.
Liquid Cds
Liquid cds work like money market accounts, but offer higher CD interest rates for the investor. Like a money market cd, you must maintain a minimum balance in your account but do not incur early withdrawal penalties if you need to touch your funds. There is always a maximum amount of withdrawals you can make, and usually a minimum on how long you must wait until making your first withdrawal.
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