Get CDs to Work in Your Favor

One can safely invest one’s money in these certificates of deposit at any of the banks.  The investor firstly looks at the benefits of investing in these certificates of deposits.  Though these are safe and secure modes of investment, one has to exercise caution and know the pros and cons and avoid the pitfalls before investing.  There is always a fine print that one has to be aware of and make an informed decision.  In case of any doubt whatsoever, one has to always check with the banker and get clarifications regarding the same before making the investment.  Some amount of research is mandatory in order to avoid embarrassing situations later on.

Penalty on Early Withdrawal

While every investor wants to stay invested for the stipulated period of time or until maturity, it may not be practical.  Sometimes, there may be situations in life where there would be an urgent need for that money and a person may be forced to withdraw the money much before the stipulated time period.  What happens in such cases?  It is understandable that one has to forego some part of the interest in case of early withdrawal.  But some banks charge a much higher penalty than other banks.  For instance, if the bank is charging an investor more than 6 months interest as penalty for a certificate which would mature in 5 years then it is not worth it.  It would be better to bank with another provider.  While some banks allow withdrawal of smaller amounts, there are others who just dissolve the Certificate of Deposit irrespective of the amount withdrawn.

Avoid Financial Brokers

In case you want to purchase a Certificate of Deposit (CD), it is always advisable to buy it from a bank as it is more reliable.  In case of purchase of CD through a financial broker, the investor cannot make early withdrawals at all.  In case of an emergency one can get stranded, especially so if that is the only investment one has.  In such cases, one has to wait until the date of maturity to withdraw the same.

Mergers or Takeovers

Bank mergers and takeovers are a common occurrence these days.  In cases of bank failures or bankruptcy the investors are safe since CD’s are insured under the FDIC.  When there are mergers between two banks the bank which takes over may operate with a new rate of interest and may not honor the previous one wherein the rates of interest may be decreased.  Under these circumstances, one has the option of withdrawing the money without penalty.  After takeover, if the bank’s assets are not picked up immediately one has the option of cashing out the CDs right away since they are insured by the FDIC.