In the financial world, people are always looking for ways to either save money or invest it. By opening a certificate of deposit, you are actually doing both. By opening a certificate of deposit, you are forced to save that amount of money for a pre-determined length of time. Having your money in a certificate of deposit draws interest, which will be given to you in a payment.
Significance
A certificate of deposit, more commonly referred to as a "CD," is a secure way to hold money in a bank. A CD is a deposit of a large sum of money, generally $5,000 or greater. When money is deposited in a CD, it is set at a certain interest rate, and can only be withdrawn after a certain pre-set time frame.
Function
Money that is deposited into a CD is done so to collect interest.
Usually, CD's are insured by the FDIC for $100,000, making it necessary for an account holder to have more than one CD if needed.
Types
Traditional CD's allow you to deposit money for a specific length of time. You cannot withdraw money from this type of account.
Liquid CD's are different than most, they allow you to be able to withdraw money from the account, but you must keep the minimum balance required by the bank. If your CD drops below the minimum balance, some banks will automatically close your CD account.
Bump Up CD's allow you the freedom to upgrade to a higher interest rate, if the rates rise.
Considerations
If you have acquired a large sum of money, consider putting it in a CD.
As a great investment for the future, consider opening a CD for a child or grandchild.
Consider the fact that you must report interest earned by a CD on to your taxes.
Benefits
Having money in a CD drawing interest in the bank is beneficial because it forces you to keep the money in the bank as opposed to withdrawing it little by little.
Tags: certificate deposit, interest rate, large money, length time, minimum balance, money bank
