Investing in a Certificate of Deposit Offers Low Risk and High Interest

For consumers who aren’t interested in taking risks with their investments, a certificate of deposit (CD) is a great choice. When you invest in a CD, you’ll enjoy the security of a protected investment without the worries created by volatile market conditions. Additionally, CDs often boast higher interest rates than other types of investment accounts, which make them a profitable solution for your retirement goals. Whether you need a secure holding place for your savings or an account with high interest, a CD could be the investment you’ve been waiting to find.

Choose Longer Terms for Higher Interest
Certificates of deposit have fixed terms and fixed interest rates. You’ll earn a guaranteed rate on your savings for the duration of your investment, provided that you let it mature in the CD for the agreed-upon term. These terms often range anywhere from three months to five years, but you’ll typically earn higher interest rates when you choose a certificate of deposit with a longer term. Of course, there are some cases where banks offer better rates for alternative investment periods. Watch out for any specials your bank might offer, as you could end up finding a better deal on a CD with a slightly longer or shorter period than you expected.

Once the investment has finally matured, you can choose to withdraw both your savings and the accrued interest. You can also roll the money over into another CD, which will have another fixed term.

Be Prepared with a Substantial Upfront Deposit
Most CDs require a minimum deposit at the beginning of the investment. Though this might be a deterrent for some investors, you’ll usually earn even higher interest rates when you invest more initially. The best rates are usually found for CDs with high minimum deposits and long investment terms.

Keep Your Money Protected
Overall, a CD is one of the safest investment choices you can make. Your money is insured by the Federal Deposit Insurance Corporation (FDIC), so as long as you follow the CD’s terms, your initial investment and the interest you accrue cannot be lost. In this way, a CD is very similar to a standard savings account. You’ll earn higher interest with a CD over a savings account, however, because of the fixed term of the investment. Additionally, you'll encounter fewer risks than if you were to invest in a mutual or money market fund.

Avoid Early Withdrawals
When you open a certificate of deposit, it’s important to only invest what you can afford. CDs generally have extremely high penalties for early withdrawals, as the interest rates you earn are based on the conditions of your investment term. It’s rarely profitable to withdraw money early from a CD, and you should only do so in the case of an emergency. As a result, it’s best to plan ahead by making sure you can do without the money in your CD for a long period of time. If you’re not committed to leaving the money in savings, consider placing it into a savings account where you’ll receive lower interest, but fewer penalties.

How to Find the Best Rates
CD rates typically reflect national averages, but you can find great deals by shopping around between banks. You should look for a certificate of deposit that has an investment term that is suitable for your financial situation, as well as a minimum deposit amount that you can meet. Additionally, you can also look for alternative CD options that sometimes have lower interest rates with more flexible terms. If you’re interested in a low-risk investment, the right CD will satisfy your financial needs.

Victoria Lee is an experienced author with a special interest in finance. Based in New York, she gives advice on investing your money and the benefits of a certificate of deposit. Her favorite pastime is reading up on the latest finance news and she saves her best tips for her finance information pages: http://www.squidoo.com/lensmasters/FinancialTips4U at Squidoo.