Certificate Accounts

What is a Certificate of Deposit?

Certificates of Deposit, commonly known as CDs, are a popular and secure investment option offered by financial institutions such as banks and credit unions. CDs are considered low-risk investments because they guarantee the return of the invested principal along with a fixed interest rate over a specified period. This makes them an attractive choice for conservative investors who seek a stable and predictable return on their savings.

One of the key features of CDs is their fixed maturity period, which can range from a few months to several years. During this time, investors cannot withdraw their funds without incurring a penalty, making CDs less liquid compared to regular savings accounts. However, this restriction provides a sense of discipline for investors, encouraging them to save for the long term.

Why Should I Get A Certificate of Deposit?

CDs offer competitive interest rates, often higher than those of regular savings accounts, making them a valuable tool for growing savings passively. The interest rate on a CD is determined at the time of purchase and remains unchanged throughout the investment period, shielding investors from fluctuations in the market.

The process of investing in a CD is straightforward. Investors select a specific term and deposit a certain amount of money with the financial institution. In return, they receive a certificate outlining the principal amount, maturity date, and interest rate. Many institutions offer flexible options, allowing investors to choose from various terms to suit their financial goals.

Since CDs are typically backed by the government or insured by the National Credit Union Administration (NCUA) in the United States, they are considered a safe investment vehicle. This backing provides an extra layer of security, assuring investors that even if the financial institution faces difficulties, their invested principal, up to a certain limit, will be safeguarded.