A certificate of deposit (CD) is a safe and beneficial form of an investment
. It is similar to a savings account but superior in that the rate of interest earned is higher. A CD is basically a deposit you make that is locked in for a predetermined period of time.
Once the maturation date of the CD has been reached you are left with a few options. You can reinvest the money into a new CD (in other words allow it to roll over) or you can put the funds into your checking account or your savings account. Another option is to cash out the money to use it for whatever you require.
Certificates of deposit or CDs as they are often referred to are debt and financial tools that financial institutions issue to investors. In exchange for lending the bank money for a set period of time the investor is paid a predetermined interest rate.
An investor can take out a CD for a few short months up to a number of years (and in some instances, even a few short weeks). The interest rate earned increases in size in relation to the length of time it takes the investment to mature. That is why you must always be aware of what the present CD and money market rates are.
The good thing about CDs is that they are FDIC insured for up to $100,000. The disadvantage is that the individual cannot take any money from the certificate of deposit without incurring a stiff penalty. This makes CDs not the most liquid of assets.
Money market accounts are similar to CDs in that they share many of the same benefits. One added benefit of a money market account however that is it has the features of a checking account. Basically a money market can be likened to a mutual fund that always tries to keep its share price at a constant one dollar. Money can be deposited in a money market account and then it is used to invest in such things as certificated of deposits, savings bonds and government t-bills, etc. The income from the account is then paid to whoever opened the money market.
Depositing funds into a money market account is as simple as depositing it into a checking or savings account. The money is then available for other investments right away. There are instances however where banks will place a limit on how many checks can be written against the money market account over the course of a month. When it comes to CD and money market rates always do your homework ahead of time!