What are the most common types of CD?

The Certificate of Deposit or CD is one of the best ways for consumers to secure their savings and at the same time earn through the high interest rate offered. One feature of this deposit service however, gathered a split reaction from people.

Certificate of deposit accounts typically have a lock-in period wherein depositors do not have access to their money. This means that they cannot withdraw their money before a specific period (one they agreed with at the start of the transaction). For some people have, this is an advantage because they cannot spend their savings when they have the urge to do so. Of course, some people don’t like this feature especially when they are saving up for an emergency (such as a pregnancy or a vacation). For those people who have a hard time maintaining savings in the bank, this can be a good way to practice disciplined savings. However other people find this more of a disadvantage than a benefit given that most people save so that in cases of emergencies they will have an immediate source of money but with their savings locked in, they cannot withdraw funds anytime.

Due to this observed limitations several types of CDs are now available in banks which are more flexible than the traditional certificate of deposit.

Today we have Liquid CDs which directly addresses the limitation of the traditional form of certificate of deposit. Before Liquid CD, if the depositor withdrew before the maturation time he/she will be penalized. Now consumers can choose to add more flexibility to their deposit by choosing Liquid CD in which limited numbers of withdrawal without penalty is possible. Keep in mind, however that this particular type of CD sets minimum a balance which the depositor has to keep in his/her account. Moreover, with this type of CD, interest rates are lower than the original version of CD.

Another type of CD offered nowadays is the High-yield CDs. Consumers must have some analysis on the terms and conditions of this certificate of deposit before availing this type of service. This CD is designed to help consumers increase yields by finding the highest possible interest rate. Of course, with any investment, comes a risk. Hence, before anyone chooses to sign up for this service, they must first understand the different terms and conditions attached with this account.

Another type of certificate of deposit is the Jumbo CD. This type concerns itself with accounts that carry more than $100,000 (which are frequently high yield accounts). This is a more risky type of CD given that the amount of balance it is covering is beyond what the federal government can ensure. Nevertheless brokerages and banks offer even higher rates for Jumbo CD to pay off the absence of insurance.

These are just some of the options consumers can choose from. The varieties of CD are still increasing, thus it can be expected that there will be more choices in the future.