Things you should know about certificates of deposits
The economic downturn seems to have had adverse effects on the financial markets. Investments have literally been wiped out and scores of individuals have lost all their savings. Hence, a number of people have started looking out for safer options where there are lesser risks. Certificate of deposits are considered to be the safest investment as it offers reasonable returns. This is certainly a better option for those who are looking for better options than a savings account. The principle amount is always intact, so there is nothing to worry. There are different types of CDs, but the most popular ones are jumbo CDs and callable CDs.
The annual percentage yield or the APY is the key factor in deciding the worth of the CD. You can draw comparisons between two CDs by taking a look at the annual percentage yield that each CD offers. This will give an actual picture of what the CD will actually pay the investors. There may be different types of CDs with identical maturity dates, but the interest may be paid annually, half-yearly, or quarterly. The annual percentage yield will take into account the frequency of payment of interest on a particular CD.
A callable CD is one where the certificate of deposit may be ‘called for’ by the issuing bank after the expiry of call protection. For instance, if the CD has a call protection time limit of six months, it may be called or taken away at the end of the six-month period. This type of CD can be taken away even before the date of maturity. Callable CDs generally come with higher APYs because the investor is taking the risk of losing out on the interest on the CD. Banks like offering callable CDs because the risk of a drop in the interest rates is then shifted to the investor. The higher yield is given as compensation to the investor for willingly taking on the risk of losing out to the locked in interest rates.
Jumbo CDs are essentially CDs for larger amounts that may be $100,000 or even higher. The interest rates in jumbo CDs are high and that is a huge advantage. With so much of uncertainty in the financial markets jumbo CDs are still the best option right now because they are relatively secure, and it is not easy to find any investment where you can get a better rate of interest. Since CDs are generally short-term investments, risk free, and pay higher interest rates on maturity, these are certainly the most sensible option. Although jumbo CDs don’t have the same FDIC protection as the regular CD, it is still advantageous when compared to other high-yield investments, where the risk is also higher. Since jumbo CDs offer higher interest rates, the time taken to accumulate substantial returns on your investment is also much less.
Due to the fantastic rates that are being offered, the jumbo CDs have become hugely popular. So, if you have a large sum of money to invest for a certain period of time, the jumbo CDs are the best bet.
