Advantages of a liquid CD

One of the basic questions that intrigue the minds of the investors is where to invest ones’ funds. There are a plethora of investment options that banks and other financial institutions offer. Certificates of deposit, savings account, Money market account etc. are few such investment options available. It is wise for one to invest his or her funds into such schemes instead of the funds being stagnant they could earn the investor returns without having to actually work for it.

What are certificates of deposit?

There are financial instruments where in a certain sum of money is locked for pre determined duration of time at a predetermined rate of interest. The returns are available to the investor on maturation of the CD. A traditional CD poses a couple of disadvantages. One being the rates of interest is fixed. Interest rates are influenced by a number of factors. The stock market has a major influence of them. With the CD the rates of interest cannot be changed according to the trends of the stock market. Hence even if the rates of interest rise the investors are not eligible for them. The other disadvantage that a traditional CD poses is that the money is locked as in the funds are not liquid. The CD cannot be terminated prior to maturation without incurring hefty penalty fees.

What is a liquid CD?

 They are CD’s which work on the same basic principle of the traditional CD but the only difference being the duration and the fact that it gives the power to the investor in terms of access to his funds . The duration of the CD’s are short and the CD matures earlier. This provides an opportunity to the investors to access his funds on completion. The risk of a long term CD is avoided. They offer rates of interest between that gained by traditional CD’s and money market accounts. They usually are short term CD’s having a minimum balance of $5000. The duration ranges anywhere from, three months to a year. The terms of this CD vary from bank to bank. An Ideal liquid CD’s permits a withdrawal of $500n a week. The funds in this CD are in a fluid state and money can be deposited at any given time.

Advantages

• Funds are in a fluid state.
• User friendly
• Stable and safe modes of investments
• FDIC approved.