Points to remember when you opt for liquid certificates of deposit

Certificates of deposit are an investment option that has become very popular lately. They are a very good alternative to the conventional savings accounts that many people keep getting. But you need to remember that a certificate of deposit is for those people who have a lot of spare cash lying around that is not needed immediately. Traditional CD’s or certificates of deposit cannot be en cashed without incurring a penalty. But there are a few specialized CD’s that will give you access to the same without you having to incur too much penalty or at times no penalty at all.

On purchase of a CD, there are two parameters that are universal. Firstly, you need to give an initial principal amount on which the interest rate will be applied. Secondly, you will need to provide a time period for the deposit. A CD is sometimes referred to as a time deposit. this is because you will not have access to the money without incurring a penalty. You can end up losing several months worth of interest which can add up to a couple of hundred dollars at times. but the liquid CD is differed. It will allow you to remove a certain amount every period without having to incur too much penalty. 

Normally a CD will pay a rate of return which will be somewhere in between that of a conventional CD and a money market fund. But it’s worth it considering you will have access to your money at regular intervals of time. But it is a short term investment. The maturity period might be a couple of months or a year at the maximum. When it matures, you will have a certain time period within which you will have to encash it, if you do not want to do this it will automatically be reinvested in another CD. This is called a rollover.

The terms for these CD’s are fixed by banks and the terms will vary between banks.

A liquid CD will have a minimum size in all instances. And it can be issued for a period ranging between three months to a year. Now normal CD’s can be given out even for six year. You can remove amounts up to $500 each month if your initial investment is $5000. Sometimes, you can withdraw even on a weekly basis. You can also deposit money into the account as and when you get some. Thus this CD will function like a money market account but the only difference is that the interest rate is fixed. And again, even the withdrawal limits are fixed.

Benefits of a liquid CD

Liquid CD’s pay much better rate of return than a conventional savings account and the thing about this rate of return is that it is guaranteed by the insurance that is provided along with the certificate. Always go for certificates that are insured by the FDIC or the national credit union authority. For those who desire to have access to the money, its worth losing out of a little interest given the benefits. Liquid CD’s are particularly of good use to retired employees who are living off a pension. If they need some urgent medical funds they would not have to pay hefty penalties to access their little savings.