Liquid CDs: How Do They Operate?

Investing money in these times can be a frustrating endeavor with interest rates fluctuating immensely and uncertain economic conditions the solution would be a Liquid CD. Flexibility in investments is the best way one can be ensure to get the best out of their money: This flexibility is offered in terms of interest rates and quick access to money. The most common investment arenas would be savings accounts, money market accounts and Certificate of Deposit (CD). Saving accounts offer full accessibility but low interest rates, Money market accounts offer less accessibility but higher interest rates. Traditional CD on the other hand operates by giving you a certificate for depositing money in their account for a specified period and offers a higher interest rate than savings accounts. However if you make an early withdrawal prior to maturity of the CD, there is a penalty.

A liquid CD operates similar to a Traditional CD: You will have a fixed interest rate but in the event that you need to access your money between deposit periods, there is no early withdrawal penalty. Basically it is an amalgam between a savings account and a Traditional CD.

You Might be wondering what is the catch? Liquid CDs give investors more flexibility in terms of accessibility to funds and withdrawals. Withdrawals are limited to a specified withdrawal limit which should not be exceeded, if exceeded then and only then is there a withdrawal penalty. However the interest rates on the even best Liquid CDs are lower than those offered by Traditional CDs. On the up side they are at times higher than those offered by the best savings accounts and since it is a fixed interest rate with flexible accessibility they are a much more appealing investment option.

Liquid CDs are appealing because, with Traditional CDs in the event that interest rates hiked before maturity of your bond. You would not be able to take advantage of the current economic boom. With Liquid CDs however if interest rates hike you can easily withdraw your invested money without a penalty clause and invest it in a higher interest CD or Money Market account. Similarly if interest rates drop you can move your money to a fixed rate liquid CD and get better returns.

Risk –Free CDs, No-Penalty CDs or Flexible CDs are some of the common names used by various banks to refer to liquid CDs. Liquid CDs are insured investment hence they guarantee security and safety.