What are the features of a liquid CD and its advantages?

Certificate of deposits are a popular alternative to savings account. They not only provide a better rate of return but are also less risky. Traditional CDs can be cashed in only after the maturity date in order to avoid high penalties. Liquid CDs come in use in these cases where you want to have access to your money as well as earn higher returns. 

Liquid CDs are also known as “no penalty” CD. These CDs are flexible and are in accordance to the needs of the customers. All the features of the liquid CD are similar to the traditional CD except for the fact that the investor has the option of withdrawing money in limited amounts without paying penalty. 

Features 

Some exclusive features of liquid CD are as follows- 

1. Liquid CD pays an interest rate between that offered by the traditional CD and money market accounts like the different mutual funds.
2. While traditional CDs have tenure of at least one year, liquid CD is a short term certificate of deposit which has a maturity period of less than one year.
3. When a liquid CD matures there exists a time “window” within which the investor can cash in the entire maturity amount.
4. Unlike traditional CDs, liquid CDs are not time locked and an investor can have access to his money without having to pay penalties.
5. The liquid CD terms are variable as they are set by the banks.
6. It has its functions similar to the money market accounts. In general liquid CDs start with a minimum denomination of $5000 for a period of three months to one year. Investors can withdraw an amount of around $500 on a weekly basis and can also add on additional amounts to the certificate of deposit. 

Benefits of liquid CD 

1. Liquid CDs have better rate of interests than the usual savings account and assure guaranteed return.
2. These are penalty free certificate of deposits and do not attract penalties on withdrawal of money.
3. The liquid certificates of deposits are FDIC insured and so risk free forms of investment.
4.  Liquid CDs give access to quick money in case of emergencies.
5. The CDs are most beneficial for the retired people who can earn interest rates while having access to money.
6. The flexible element of liquid CDs allow investors to withdraw money and invest in other plans that can give higher returns. So the income opportunity is not lost in liquid CD investments.