What are the benefits of a liquid CD?

Traditional CDs are a very popular choice compared to the savings account as they provide a better rate of interest and since they are FDIC insured but the biggest disadvantage is that it cannot be liquidated before the date of maturity without paying the hefty penalty.

About liquid CDs:

Liquid CDs work just like other CDs but offers access to your money.  A liquid CD is also a certificate of deposit that allows the investor to withdraw money without imposing any penalty for doing so.  The biggest advantage with the liquid CD is that it can be liquidated throughout the year and hence the money is accessible at all times throughout the term.  The flipside is the interest rate which is much lower than the traditional CD.  Most CDs require a notice in order to make a withdrawal and there is a requirement of a minimum balance that needs to be maintained in the account.

The interest rates that are paid in a liquid CD are somewhere between the interest rate of a traditional CD as well as the money market account.  These are short-term CDs with a maturity period of less than a year.  When the CD reaches the date of maturity there is a ‘time window’- a period in which one can cash in the entire amount of the CD.  If that is not done the deposit in the liquid CD will automatically be rolled in to a new CD.

Terms and Conditions:

The terms and conditions in the liquid CD may vary from one bank to another.  The minimum deposit required for a liquid CD is $5,000 and it is issued for 3 months to a year.  Up to $500 can be withdrawn on a weekly basis.  Additional amounts also may be deposited if necessary.  Hence the liquid CD functions more like a money market account with the exception of the interest rate which is fixed and there might be a penalty if the withdrawal amount exceeds the limit.

Benefits:

The benefits of the liquid CD are that the interest rates are better than that of a savings account and they are also insured by FDIC and hence the investor is safe.  This is also a safe option for retired people as they can access the funds in case of emergencies.  With liquid CDs one can move the funds (in case of a rise in interest rates) to a higher interest CD.