Saturday, February 16, 2008

Certificate of Deposit (CD)

A Certificate of Deposit or a CD is a promissory note issued by a bank. When you open a CD account and deposit money into it, you are restricted from withdrawing money from it during the term of the CD. If you do need to withdraw money, the bank will charge a fee. The term of a CD is between 1 month to 5 years. Your savings will earn a fixed interest rate that is generally higher than a regular savings account. At the end of the term, your CD will enter a phase called a maturity date. Only then can you withdraw money from the CD without penalty. If you do not do anything to your CD, the CD will automatically enter another term.

Personally, I have never open a CD account. I found banks that earns higher interest rates on the savings account than a CD. I also invest my money in the market. CDs are good for short term goals, but for long term goals, you are better off investing into mutual funds.