Liquid CD and its features
For since a long period, traditional certificate of deposits have been popular as an alternate to the savings account. Traditional CDs provide a better rate of return on the invested amount and they are insured too. However, withdrawal of whole or part of the deposits is not permitted until the maturity of the certificate of deposit without any penalty. As an alternate method of deposit, Liquid Certificate of Deposit was introduced in the market.
Interest rate of a liquid CD ranges by an intermediate rate that is being offered by the traditional CD and a money market fund. The minimum maturity period of a liquid certificate of deposit is less than a year. On maturity of liquid deposit, the amount can be withdrawn in a specific period issued by the regulating authorities and if it is not withdrawn, the deposit will be rolled over into a new liquid certificate of deposit.
Liquid CD is a common term and it is called by different names by different banks. This CD is issued for a minimum of three months and goes till a maximum of one year. The minimum amount of deposit is $5000 from which any amount can be withdrawn on a weekly basis. Apart from regular withdrawals, additional or regular deposits can be made, which is not provided by any other type of certificate of deposit. The other benefit of this CD is that the amount can be withdrawn over a prescribed period of time without incurring any penalty. This type of CD functions like a money market fund or money market account, except for a fixed rate of interest. The better rate of interest paid by liquid CD is guaranteed. All the liquid deposits issued are insured with FDIC insurance or with National Credit Union Authority for Credit Unions. These CDs are popular among the retired people as they are allowed quick access to the amount deposited in these funds in the event of any unexpected or emergency expenses.
The major risk involved in other types of deposits is that when the interest rates rises well above the maturity of deposit, the investor may lose the income from interest. But, liquid CDs do not have this risk as it allows the depositors to withdraw the amount at any time. Similarly reverse of the above also works well.
However, a liquid CD suffers by certain limitations as under. Even though the fund is allowed to be withdrawn or over limit withdrawal is allowed, some accounts call for a minimum balance requirement. Liquid CDs governed by federal regulations state that no money is allowed to be withdrawn from the account until the money has been in the depository account for a minimum period of seven days. During a few emergency situations, the same is allowed but comes with a payment of penalty owing to an early withdrawal, which is generally high. And some deposits are limited with the number of total withdrawals or number of withdrawals per term.
