Certificate of Deposit
A Certificate of Deposit (CD) is a financial product offered by banks and credit unions that allows individuals to deposit funds for a fixed period of time at a specified interest rate. CDs typically offer higher interest rates than regular savings accounts, but they often have penalties for early withdrawal. They are considered low-risk investments.
7 Key excerpts on "Certificate of Deposit"
eBook - ePubPandemics and Behavior Finance Control Wall Street Volatility
Where Emotions Rule
- Ernest H. Brooks(Author)
- 2021(Publication Date)
- Christian Faith Publishing, Inc.(Publisher)
...32 The Day of Certificates of Deposit The money a person manages to save can be invested in a variety of ways. An individual who is a more aggressive type might achieve substantial growth by investing in stocks. If they are less aggressive, they could go for bonds. However, if they want to play it rather safe, then a Certificate of Deposit (CD) could be the best option for them. Certificates of deposit are savings accounts that credit unions, banks, and other financial institutions offer to consumers. These accounts come with fixed maturity dates and interest rates. Moreover, they generally have minimum deposits requirements, and penalties are imposed for early withdrawals. CDs can be a good investment option for risk-averse individuals and those who have heavily invested in the stock market and want to diversify their portfolio with less risky investments. CDs, like any other investment vehicle, come with their share of pros and cons. We will take a look at the history of certificates of deposit and explain how they work and the pros and cons of using a Certificate of Deposit. History of certificates of deposit Early European banks employed two systems. The first system was of exchange—taking money in one form and converting it into the local monetary system, while the second system took a form of a depository where money was taken from an account holder, and they were given a receipt for the money they deposited in the bank. Banks used to loan out money of the account holders to merchants, and eventually, they started charging interest on the use of their money. In turn, the banks had to establish a specific rate to borrow their deposits to customers so that they could loan it out for a particular time period. This is how the certificates of deposit began...
- Thomas Herold(Author)
- 2020(Publication Date)
- THOMAS HEROLD(Publisher)
...What is a Certificate of Deposit (CD)? A Certificate of Deposit refers to a kind of savings vehicle which generally provides greater returns for money invested than the typical savings accounts do. There is very little risk in such an account. They also come without monthly fees. Besides this, these CDs prove to be significantly different from the age old savings accounts for several reasons. Such a Certificate of Deposit stands for a time deposit. While an individual who has a savings account is freely able to make additional deposits or withdraw available funds relatively at will, this is not the case with CDs. Holders of CDs consent to tying up their money for a minimum length of time. Banks calls this the term length. Such term lengths might be only a few days. They could also extend up to ten years out. Standard CD’s run from typically three months to five years. In general, the longer the term length proves to be, the better the rate of interest the Certificate of Deposit will pay. The longer the term length is, the greater amount of time an individual ties up the money in the account at the bank too. It makes sense that the bank rewards customers for committing to a longer amount of time with a larger CD rate than they pay on comparable savings accounts. Banks generally quote these CD rates using the APY annual percentage yield. This rate takes into account the compounding periods on how often the CD pays interest which can then earn still more interest on it. The banks have the choice of compounding periods based on annually, quarterly, monthly, and daily compounding. The closer a CD compounds to a daily rate, the higher the APY will actually prove to be. There are penalties involved with drawing the money out of the Certificate of Deposit before its final maturity date. While every bank is different, most banks will levy a penalty of from three to six months in accrued interest for breaking the time deposit early...
eBook - ePubYou Got This!
Your Million Dollar Path to Financial Freedom
- Scott Carter, Jill Carter(Authors)
- 2018(Publication Date)
- Morgan James Publishing(Publisher)
...Whether it’s a major car repair or a medical emergency, we may need to access cash quickly. Some of our portfolio mix will require cash or other liquid assets quickly convertible to cash. Cash can sit in a variety of different accounts. Ready Cash Ready cash is usually in your pocket, a secure place like a safe, or in a checking account. It’s money ready for payment of housing, food and other regular expenses. Some checking accounts pay interest. However, the minimum balance requirement of such accounts is probably higher than you should maintain because that interest rate will provide a low rate of return. Savings Accounts Savings accounts or passbook savings accounts allow frequent deposits and withdrawals, so they have low rates of return. However, they are useful as a ready backup source of emergency cash. Certificates of Deposit (CDs) In these investments, you deposit a sum with a bank for a determined term. Your deposit is no longer ready cash. The bank provides interest on the deposit for the given term as well as an instrument memorializing the deal. That instrument is called a CD. You may end up with a $5,000 five-year CD which could yield a paltry 2% interest upon its maturity date (or $100) after having your money tied up for 5 years! The longer the maturity date, the higher the interest rate, but these no longer even cover the cost of inflation. And, if the investor cashes the CD prior to the maturity date, she pays a penalty. Money Market Accounts Money market accounts are a hybrid between savings and checking accounts. Money market accounts pay higher interest rates because the investor must maintain a higher, sum-certain balance. The Federal Deposit Insurance Corporation (FDIC) insures money market accounts which brings peace of mind. The money market account bears similarities to a checking account. For example, the investor has limited check-writing privileges. Your deposit is something akin to ready cash with a higher yield...
eBook - ePub- Deborah Reynolds, TBD(Authors)
- 2020(Publication Date)
- Credible Math, LLC(Publisher)
...The interest the bank pays you for this account varies from bank to bank. Therefore it is good to shop around for the best rate. Money Market Accounts pay higher rates of interest than savings accounts. However they require a higher minimum balance. There may also be withdrawal restrictions. The interest rate usually varies with the stock market. Certificates of Deposit (CD) pay the highest rate of interest. However your money must remain in the bank for a long period of time, which could be a number of years. There are usually financial penalties for early withdrawal. ATM and Debit Cards allow you to withdraw money from your checking or savings account without going directly to the bank. Debit cards allow you to pay for store merchandise when shopping. Applications on smart phones also allow you to debit your account. Credit Cards are issued based upon a bank loan or line of credit. The bank charges high interest for the use of this card. Visa, MasterCard, Discovery, and American Express are the most widely used. Investments usually involve the purchase of securities or stocks and bonds. Stock certificates are issued when a company desires to raise money for expansion. The company goes from being privately held to a public company. Apple, Facebook, General Motors, Google, Nike, and Citicorp all issue stock certificates. ONLINE BANKING The internet allows us to do our banking from any location. We no longer need to go to the bank in person or wait in a long line. We can now access our bank accounts from any location, using different electronic devices which have access to the World Wide Web. Pay checks can also be deposited by employers using direct deposit. We can use online bill pay and transfer funds between accounts. There are applications on smart phones which allow us to do banking. INTEREST Interest is the cost of using or borrowing money. It is the amount the bank pays you for the use of your money or charges you for lending you money...
eBook - ePub- John Roscoe Turner(Author)
- 2019(Publication Date)
- Routledge(Publisher)
...Compared with these deposits the bank credits (substitutes for money) issued upon them are many times larger. Consequently deposits have the effect of lowering the purchasing power of money or of raising prices. 12. Time Deposits are carried by savings-banks, as well as by separate departments of commercial banks. These deposits are not drawn (as are deposits in commercial banks) on demand. Upon making a time deposit the customer agrees not to draw for some specified minimum time, or until a certain number of days after he shall have notified the bank of his intention to withdraw funds. Because the banker knows in advance when withdrawals will be made he can prudently invest a large portion of the funds intrusted to his safe-keeping. There is no danger of a "run" upon the bank in times of panic. He has to maintain but a small fraction of the deposits to meet the demands of his customers for cash. The Federal Reserve Act of 1913 requires that only 5 per cent shall be kept as a reserve against time deposits. The depositor receives Interest on time deposits and regards them as investments and not as demand credit available for current cash transactions. Demand deposits are spoken of as checking accounts; they are payable at any time and the demand for payment is made by the personal check of the depositor. 13. Liabilities and Assets. Thus far we have seen that bank discount amounts to this: the bank buys the right to collect a specified sum of money at a certain future time, and gives in exchange its promise to pay on demand a sum of money equal to the present worth of the money it acquires the right to collect. A liability (debt) is that which one is under obligation to pay. The bank has a right to receive, at its maturity, the face value of a note which it discounts; there is a corresponding duty to pay on the part of the debtor or maker of the note. That which is a right of the bank is a debt or liability of the debtor...
eBook - ePubHow a Second Grader Beats Wall Street
Golden Rules Any Investor Can Learn
- Allan S. Roth(Author)
- 2009(Publication Date)
- Wiley(Publisher)
...That’s a fancy way of saying it’s unlimited. Make sure to read the CD terms and keep a copy. Relative to prospectuses and insurance policies, they are actually very short and simply written. Next, make sure you qualify to buy this CD. Sometimes banks want only local customers, or credit unions don’t offer a way for anyone to join. Confirm that you are not being lured into a teaser rate. Warning signs are institutions that: Give you a rate that can change at any time, even after you’ve opened the account. Give you this great rate but limit the deposit amount to a low maximum like $1,000. An extra 1.00 percent on $1,000 yields only an additional 10 bucks a year—hardly worth it. Tie your great rate to something like a credit or debit card. All they are doing is subsidizing one product with another. If everything looks good up to this point, then start researching the institution on the FDIC.gov or NCUA.gov web site. Make sure it is legitimate. Be careful not to exceed insurance limits. There is no need to take uncompensated risk by going over these amounts. If local, go visit the institution to set up and fund the CD. If out of town, call the institution and confirm the rates and arrange the fun-fest of filling out all of the paperwork and funding the account. Then always confirm that the account was set up and opened at the agreed-on rate. Finally, mark the maturity date on your calendar, as well as a reminder three weeks earlier. You’ll want to start researching rates well ahead of the date your CD matures. If you find a higher rate, let that institution know because it will often match the rate in order to hold onto your funds. Try to select an option that doesn’t let your CD automatically renew as it will likely be at a rate lower than your alternatives at that time. Finding these rates may not be as exciting as other endeavors, such as trying to find the next hot stock or mutual fund. What it lacks in excitement, it will more than make up for in ease and profit...
eBook - ePubSave Yourself
Your Guide to Saving for Retirement and Building Financial Security
- Julie Grandstaff(Author)
- 2018(Publication Date)
- SeSo LLC(Publisher)
...You may need to add to your emergency savings if your have-to expenses rise or if you need to tap your savings for the emergency it’s there for. But for the most part, your emergency savings is a one-and-done kind of goal. Your emergency savings need to be in something safe so the money will be there when you need it. Options include a savings account at your bank or credit union, a money market mutual fund available through most financial institutions, certificates of deposit at your bank or credit union, or a high-yield savings account through an online bank. Savings accounts and money market mutual funds are very flexible, with no limits on deposits or withdrawals. Some money market funds will have minimum initial deposit requirements though. Certificates of deposit are accounts that require you to leave your money on deposit for a minimum period that can range from one month to several years. An early withdrawal can result in the loss of interest earned and a possible penalty, but you will get a higher interest rate for the inconvenience. High-yield savings accounts have some restrictions but are generally more flexible than certificates of deposit. Savings accounts, certificates of deposit, and high-yield savings accounts are backed by FDIC insurance and are therefore guaranteed up to $250,000. Money market accounts don’t have the same backing but have a long history of being a safe place for your money. Unfortunately, safe places for your money don’t pay much in interest. Even the name “high-yield savings account” is more of a euphemism than a real promise of high interest rates. The following table summarizes the various savings vehicles and their interest rates as of mid-2018. To see a comparison across financial institutions, visit www.depositaccounts.com. a...
