The ways certificates of deposits work
Certificates of deposits are time deposit, wherein the money has a lock-in period and does not yield great returns. Yet, there are many who invest in these certificates of deposit. At a time when interest rates are low and investments come with its share of risks, investing one’s money in the right place is of paramount importance. In order to get a better understanding, it is time we got to know, who, when, where, what, and why of investing money.
The investors
Certificates of deposits are chosen by investors for varied reasons. The conservatives use certificates of deposits as a safety net to put away a portion of their money. This money is put away in chunks and has different dates for maturity. This is done in order to ensure that the money does not get locked for the same period of time and instead it can be encashed at different periods. This way the lock in is not for the same period or for the same rate of interest. It is mostly the ultra-conservative lot of the population who invest in this manner. This is known as building a certificates of deposit ladder. These are called time deposits because of the lock-in period, which ranges between a few months to a few years.
Where and When
One can safely put away one’s money in these certificates of deposit at any of the banks. This could be done online also. It is a very simple process. Firstly, go through the menu of certificates that are on offer. Once the decision is taken then, just place the amount that needs to be deposited with the banker and choose the particular certificate of deposit with its respective lock-in period. These investments can be made through credit unions, banks and other financial institutions.
Why to invest?
This is entirely dependent on the investor. The investor firstly looks at the benefits of investing in these certificates of deposits. Secondly, these investments are entirely dependent on one’s financial situation and affordability. The interest earned in certificates of deposits is much higher than interest earned on a savings account. The money invested in certificates of deposits is insured by the FDIC or the Federal Deposit Insurance Corporation. Lastly, it is a far simpler way to earn money on your money in a conservative fashion, where there is no loss of principal. But a word of caution here is to let the money remain until maturity as encashment of the certificates before that could result in loss of interest for that period.
Certificates of deposits can work for those who have definite plans to put away money in a more conservative way.
