Certificate of Deposit (CD)

Table of Contents

Certificate of Deposit (CD)

A certificate of deposit is an account at a bank in which you agree to lock in a specific amount of money for a set period, and in return, receive a higher interest rate than a savings account.

The catch with a CD is that you will have to keep the money in the CD for a specified amount of time; otherwise, a penalty, such as losing three months’ interest, will be assessed.

Any earned interest can be added to the CD if and when the CD matures and is renewed. A CD ladder allows you to stagger your investments and take advantage of higher interest rates. As with savings accounts,

Pros: Unlike high-interest savings accounts, the interest rate is fixed (so it cannot go lower than the initial rate).

Cons: Your money is locked in and may not keep up with inflation, especially for longer terms.

It can be the risk that you run, locking your money up for too long. If you’re going out on a CD ladder [over] multiple years, the rate you’re locking into might seem really great now, but we have no idea what the interest rate landscape is going to look like several years from now when that last CD matures.

Reading material

  1. What is a CD? https://www.investopedia.com/terms/c/certificateofdeposit.asp
  2. Are CDs Good Protection for a Bear Market? https://www.investopedia.com/articles/bonds/08/cd-certificate-of-deposit-recession-bear-market.asp
  3. How to Invest With CDs https://www.investopedia.com/how-to-invest-with-cds-4795661
  4. CD Ladder: What It Is and How to Build One https://www.investopedia.com/terms/c/cd-ladder.asp
  5. Are CDs FDIC Insured? https://www.investopedia.com/fdic-rules-for-cds-5271560
  6. Are Certificates of Deposit (CDs) Tax-Exempt? https://www.investopedia.com/are-cds-tax-exempt-5271565
  7. Should You Put CDs in an IRA? https://www.investopedia.com/should-cds-go-in-iras-5270814
  8. CDs vs. Stocks: What’s the Difference? https://www.investopedia.com/cds-vs-stocks-5225343
  9. How Certificate of Deposit (CDs) Maturities Work https://www.investopedia.com/how-cd-maturities-work-5268105

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