Credit Loan > CD Rates > Short and Long Term Certificates of Deposit

Short & Long Term CDs

Certificates of deposit are a valuable tool whether the investor is looking in the short or long term. Money is deposited for a specified length of time – term – and cannot be withdrawn before that time without a penalty. This will take the form of anywhere from one month’s to six month’s interest, depending on the term of the CD and the agreement with the bank. However, since CDs can be purchased for as little as a month, even minimal forward planning can prevent early withdrawal most of the time.

There are several advantages to CDs over such things as savings accounts and stocks. The first is that it places the money where it is difficult to get at, which prevents it from inadvertently being used for something it shouldn’t, but still available in an emergency, while continuing to accrue and compound interest. Another is that the interest rate is locked in for the term of the CD, meaning that even if interest rates in general go down, until the term expires, that rate will stay the same. The longer the term and, in some cases, the higher the deposit, the better the interest rate-- and of course, the more money that will accrue.

Another advantage is that certificates of deposit are generally FDIC insured. This is something to make sure of with any investment-- what guarantees, if any, the grantor offers and for what amount. These guarantees make CDs proofed against a stock market fall or other market “hiccups.” While any investment requires monitoring, because of their locked interest rate, CDs free the user of the daily anxiety over what a stock is trading for on any given day. The only time they need to be handled is during the expiration period, at which point the investor has new some choices to consider.

This can consist of doing nothing and letting the CD and its accrued interest renew automatically at the existing rate. Some or all of the money can be transferred to a different investment format such as an IRA for retirement or a tax-free fund for a child. If interest rates have changed substantially since the term was last set, the investor might want to look into a new term. When the term is nearly up, it is also prudent to start shopping around to see if different financial institutions offer better rates.

Certificates of deposit do not offer the high and rapid returns that stock can, but they do provide a greater peace of mind and security. Regardless of how a portfolio is spread out, CDs with their good interest rates and security should be a part of everyone’s plan.