Benefits of Investing In Certificates of Deposits

Certificates of deposits have for long been considered one of the safest investment options around. It gives you the maximum returns for the least possible risk. The interest rates are definitely higher than a conventional savings bank account. The only difference is that you will have to stay invested for a longer period of time. We shall look into each benefit individually to better understand the CD investment option. 

High rate of interest 

The rate of interest offered on a certificate of deposit is higher than a savings bank account. If a savings bank offers you 4% per annum, the certificate of deposit with a maturity period of say 5 years will easily offer you at least 6% per annum. You can also explore better options by playing with the terms and conditions. Look for bump up or step up options. This will allow you to make one step up in the interest rates to the prevailing market rates some where during the term at a time of you’re choosing. This way you can stay exposed to the fluctuations in the market index while ensuring that you can get the bare minimum interest rate that was promised by the bank. 

FDIC insured 

All certificates of deposits that are issued by the major financial institutions are insured by the FDIC. The insurance is up to an investment of $250000. Make sure you get independent insurance if your investment goes beyond this figure. 

Liquidity 

The one major drawback of a certificate of deposit is that you will not have access to the money while it is invested. If you want to withdraw the money before it has matured, you will have to pay a penalty amount. But there are some special certificates which allow you to invest as and when you have the money and also withdraw whenever you run short of cash. This way you can retain your liquidity without sacrificing on the interest rate. 

Flexibility 

Certificates of deposits offer a lot of flexibility in your investments. You get to choose how long you want to stay invested, how much money you want to invest, and also how much you want to withdraw from time to time. You get callable certificates which can be called by the bank at any given time. But the benefit for you is that you get a higher interest rate than a conventional certificate of deposit. if the market interest rates go down below what was offered by the bank, the bank will call the CD and ask you to reinvest at lower rates. But you will also have an option to call the CD once during the tenure. So the flexibility flows both ways. 

Risk free investment 

Certificates of deposits are the least risk investment options available in the market. They have a lock in period, but at least you do not need to break your head about which stock is going up or down. It is ideal for investors who do not have a background in finance and those who do not have the time to follow the idiosyncrasies of the stock market.