Reasons Why You Should Invest In CDs

Certificates of deposit, also known as CD’s, are a terrific tool for building your savings. With a CD, your money is guaranteed to earn a set rate of interest for an agreed upon time. Because you cannot withdraw your money for the term of the account, the interest rate you are paid is typically higher than that offered on a standard money market or savings account. The rate of return on CD’s is generally low but safe, therefore they are a good way to safeguard your money.

One risk associated with investing in CD’s is that interest earned might not keep pace with the stock market. Plus, if you need to withdraw the money in the CD before the date that it matures, it will cost you early withdrawal fees as penalties. CD’s are not ideal accounts for IRAs; mutual funds are better suited to this purpose.

You have a few alternatives for how interest will be disbursed on your CD. With some CD’s, the interest is deposited into an account on a quarterly or monthly basis. With other CD’s, the interest is put into the CD account itself, or, held back until the CD matures. Plus, some CD’s are set to automatically roll over into a new CD at whatever current interest rate is being offered. If your account is set up in this manner, it’s important to note the maturity date on your calendar so that, if you wish, you can move your money to a higher income investment.

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