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