Advantages of Short Term Certificate of Deposit

Certificate of deposits or CDs as they are commonly called, are a great way to invest savings, and make some profit out of your investments. For every investment made, depending on the sum of money and the time period of investment, interest rates are awarded. When the investment meets the maturity, not only does the investor get the original sum of the money, but also the profit accumulated by the interest rates. If you are looking to invest your money in the form of CD, consider investing them in short term CD, depending on the current market situation. 

Any investment is considered short term if the time period is anywhere between three months to one year. Short term CDs are best if the current interest rates in the market are at an all time low, or the rates drop from high to low. If the interest rates are low in the market, there are high chances of it improving in the next one year. If you choose to invest in long term CD, then you will be at a loss considering the fact that you will get better interest rates after a year. Although short term interests rates offered are lower than that of the long term ones, you will have the flexibility of taking out your money and reinvesting them for better interest rates. 

If you have a long term investment, and need to draw it out before it reaches the maturity, you will be charged a penalty for breaking the deposit. This is one advantage, short term deposits have over long term. If you invest your money for three months, for example, and see a better opportunity after three months, you can easily draw out and reinvest wherever you wish to. Short term CD offers a flexibility and control over your investments, that the long term does not. 

Also, if you have invested in a long term CD when the interest rates are very high, the bank reserves the right to call back the CD when the interest rates fall. This is another advantage of having short term CD, as it allows you to decide when to reinvest your CD. 

 Before investing, always make sure to do a complete research of different interest rates offered by different banks. You can be assured that you have the best deal, when you have got the highest interest rate, along with greater accessibility to your investments, and also, lower penalty rates, if you choose to terminate your investment.