When deciding which kind of Certificate of Deposit, or CD, to open, there are several factors to consider. A traditional CD is one of the safest ways to invest money, as long as you are able to abide by the terms set by the bank with which you invest. This is why it is important to look at the numbers when choosing an online CD: what are the competing CD rates, how long the term of the CDs are, and whether or not there are minimum balances for the accounts.
Different banks will offer different CD rates. The CD rate is the percentage of interest your money will accrue over the term of the investment, usually reported as annual percentage yield, or APY. Typically, the longer the term, the higher your yield will be, meaning you will make more money. But you must be certain that you are able to part with your money for the length of its investment.
Banks can require CDs to be invested for anywhere from a month to up to four or five years. It is like you are giving the bank a loan, and you are guaranteed interest on your investment. You may make more in interest than you would have in a traditional savings account, but unless otherwise specified by the bank (like if you have a â€œliquidâ€ CD), you are not allowed to withdraw funds from the CD without incurring a penalty, which may hurt your chance of profit. This is a very important factor to consider when deciding whether or not to open a CD.
Most banks, brick and mortar or online, will require a minimum deposit for a CD. You will benefit by depositing more money at the beginning, but again, keep in mind that once the money is in the account, you will not be able to access it if you want to reap the full benefit of the CD. Some CDs allow you to continue to make deposits into the account after its opening. There are several kinds of CDs available, not simply the traditional CD discussed here. If you are willing to take on more risk, or are able to handle a longer maturity period for your investment, then you might be able to find a different CD to suit your needs.
The CD rate is probably the most important factor in deciding which bank you want to hold your investment. But many factors affect that percentage. Before investing your money, make sure to figure out how long you can go without having access to it. Once you invest, you might find that opening a CD was a very wise decision to make.