Cd Rates And Longer Term Deposits

A certificate of deposit, more commonly known as a CD

, is what is considered a time deposit. It is a savings certificate that enables the holder to collect interest on their deposit upon the CD's maturity date. They are issued by financial institutions and are considered to be a risk free investment as they are insured by the FDIC (Federal Deposit Insurance Corporation). CD terms can be set for 3 months, 6 months, 12 months, up to 5 years or even longer. CDs redeemed before their maturity date are subject to penalties or forfeiture of a portion of the interest that has been earned.

Finding the best 3 month CD rates generally requires a fair amount of internet research. Many websites are available to compare some of the current interest rates offered by financial institutions. However some of these rates are contingent upon a minimum deposit and tend to differ based on location.

Typically local banking institutions provide more lucrative CD rates when compared to national banks because of lower operating costs and efforts to gain local business. Much of the research can also be done online, using resources and calculators provided by websites to predict the potential earnings of a particular deposit.

Some websites also provide online calculators that will estimate possible returns on a set deposit amount. Rates at present average the 3% range, however information can fluctuate on a daily basis making it important to research before investing. It is also essential to know whether or not a minimum deposit is required, as well as how interest is compounded and paid out.

CDs can also be purchased through a deposit broker. Often these brokerage firms can negotiate higher than average 5 year CD rates with the banks on behalf of their clientele. They are able to do so by bringing in a set number of deposits to the financial institution that issues the CDs. CDs offered by deposit brokers are often advertised as being free from penalties.

Withdrawing funds before maturity generally incurs a substantial penalty, often resulting in the loss of several months' worth of accrued interest. These fines are in place to discourage the CD holder from cashing in their certificate before the specified term. Payout of CDs can be arranged to be periodically mailed as checks or transferred in to a designated account, usually these options need to be specified upon purchase of the CD.

When a CD is poised to reach maturity, the financial institution will notify the investor with instructions for withdrawing the principal and its accrued interest. Often they are also given the opportunity to rollover then funds in to a new certificate with a new term. However in the absence of the investor's instructions, these funds are sometimes rolled over automatically, subsequently tying up the funds further.

by: James A Jackson

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