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Certificates of Deposit


A Certificate of Deposit is a savings certificate with a specific fixed term and entitles the receiver to accrue interest.


What is a Certificate of Deposit?

A Certificate of Deposit, commonly referred to as a CD, is a means of investing at a fixed interest rate and fixed withdrawal date. Banks offer certificates of deposit as promissory notes where, unlike a regular savings account, the investor agrees to leave his/her money in the account until the maturity date. Investors are usually unable to withdraw their investment before the maturity date without paying a penalty fee.


The investor can opt for a higher interest rate by choosing a longer-length term. The interest rates for CDs are fixed, meaning it will remain the same amount until the maturity date. When the CD matures, the entire principal investment, as well as the interest will be available to the investor for withdrawal. CDs offer higher interest rates than accounts that allow you to withdraw at any time.


CDs are low risk because, like savings accounts, CDs are insured in the bank and your principal is backed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. This is what makes Certificates of Deposits one of the safest investments available.


In addition to the fixed rate CD described above there are also variable rate, liquid or no penalty, callable and jumbo CDs. 

  • A variable rate CD offers a changeable rate as opposed to a fixed rate.  Investors may benefit from periodic increased rates.  Variable CDs typically require higher initial balances.
  • A liquid or no penalty CD gives you the most flexibility in terms of withdrawal, but also comes with some restrictions that vary based on the financial institution. With these, you trade a higher interest rate for the ability to withdrawal before the maturity date.
  • A callable CD allows the investor to earn a higher interest rate, but gives the bank the ability to end the term at any time.
  • Jumbo CDs require a minimum deposit of $100,000 and typically pay higher interest rates.


How to Buy CDs

Investors are encouraged to do adequate research or contact a broker/financial advisor, attorney or CPA, to determine if CDs are an appropriate investment. Once you have determined that a Certificate of Deposit is suitable for you, it can be purchased with your Self-Directed IRA or other retirement account at Mainstar Trust. Click here to find out how to use a Mainstar Trust account to invest in a CD