Investing in a CD is a great idea. But do you know how to protect your investment and help it grow to its full potential?
If you find good CD rates and you decide to put your money in certificates of deposit, you are making a good choice. However, you still need to know how to protect your money so you can build it up as efficiently and quickly as possible. Here are three tips to help you protect the money you have invested in a CD to help keep it and your future secure.
1. Get Insurance – The federal government insures CD accounts and other types of bank accounts up to $250,000. This means if the bank goes under or if something else happens, your money is protected for up to a quarter of a million bucks. The FDIC, or Federal Deposit Insurance Corporation, helps protect you assets as you allow you money to grow. If you have more than $250,000 to invest, spread your money across different accounts at different banks. Anything about $250,000 in any one account simply isn’t covered.
2. Remember Automatic Renewals – Some CD accounts, especially if you are enrolled in a CD laddering system, have an automatic renewal feature. This means that once the CD matures, the money is automatically rolled into another CD. If you are just letting your money grow, this is a good thing because you typically don’t even have to do anything for this to happen. However, if you were planning on cashing out the CD upon maturity, you may pay a penalty to withdraw the money if you forget about the automatic renewal. Fortunately, the bank will typically send you a reminder that you CD is about to renew automatically so you can make the appropriate choices before that happens.
3. Don’t Touch the Money – If you cannot afford to invest your money in an account that you cannot touch for several months or years, do not choose a CD as your investment vehicle. Every time you take money out of your CD account before it matures, you will pay a penalty. The penalty is based on several factors but it will ruin your chances of building up your account efficiently. Either leave the money in the CD account until it matures or do not invest in a CD at all.
Interest rates for savers may be low, but consider potential losses before chasing high-interest riskier investments. Decent interest rates on safe investments can still be found, even if the rates aren't ideal.
The Wall Street Journal recently reported that interest rates for savers may stay low even longer than previously thought. As such, investors may be tempted to chase higher-risk investments in search of higher interest rates. That’s fine, as long as you realize you could lose some of your principal in riskier investments, you plan for it, and you can afford to take the potential loss.
For safe investments like FDIC-insured CDs, decent interest rates can be still be found, though the rates may not be ideal. If you qualify for membership in the Navy Federal Credit Union (eligible members include all branches of the military, retirees, reservists, and their family members such as siblings, children, grandparents, and more), you can get a 7-year certificate at a 3.5% APY with a $1,000 minimum deposit. If you have more to invest, you can get a 3.66% APY 7-year certificate with a $20,000 minimum deposit. 5-year certificates with a $1,000 - $19,999 deposit earn a 2.85% APY. If you invest $20,000 or more, a 5-year certificate will earn a 3.00% APY.
If you don’t have any association with the U.S. Military, Discover is offering a 7-year CD at a 3.25% APY or a 5 –year CD at a 3.00% APY. Interest is compounded daily and it requires a $2,500 minimum deposit. Readers should be aware there are mixed customer reviews for Discover bank customer service on BestCashCow.com. While researching banks, you should always check out both the negative and positive customer reviews and ratings so you can make an informed decision.
For the best information on CD rates, click on the CDs tab above.
If you have invested in CDs before, you probably know a little bit about what you are doing. But if you are considering doing it for the first time, you may not know where to start. Here are some tips to help ensure that you make educated and informed decisions.
Have you been thinking about investing in a CD account lately but you don’t know where to start? If so, here is a quick guide to helping you pick the ideal CD for your situation.
1. Make a financial plan. This is the first step before making any type of financial investment. You have to realistically evaluate your finances before you can even start looking at CD accounts. You can do this on your own, but enlisting the help of a financial advisor can help give you objective advice about your income and investment opportunities. They can also explain your options so you have a better understanding of where your money is going to go as well as the level of risk incurred with each investment account.
2. Know when the CD matures. It might seem like a no-brainer, but many people who invest in CD accounts do not take the time to find out when their CD reaches maturity. When they try to withdraw their money, they are surprised to find out that they cannot take it out without a penalty for another five or ten years, depending on the term of the CD. If you can’t have your money tied up for very long, consider buying CDs with shorter terms, such as a 12-month or 18-month CD.
3. Check to see if it is a callable CD. Callable CDs often offer a slightly higher interest rate but the bank has the right to return your money with interest after a certain period of time. This protects the bank from locking into an interest rate that is higher than they want to pay if rates drop. You will receive all of your money back along with any interest that has accrued, but this will reduce the total amount of money you can make by cutting your CD short.
4. Know the CD rates that you will receive. One of the main features of investing in a CD account is the interest rate you will receive. Also, find out if it is a fixed rate or a variable rate. A CD with a variable interest rate may change over time based on the current interest rates across the nation. With a fixed rate CD, however, you will get the same rate for the term of the CD for as long as you keep the money invested in it.
5. Know the withdrawal penalties. CDs are great investments if you never plan on touching the money you have invested. However, if you plan on taking the money out before it matures, you should know how much of a penalty you will pay. Sometimes the penalty is more than you will earn so be careful.
Information is the key to making money by investing in certificates of deposit. Know what you are doing before making the investment and you will come out ahead financially by the time the CD matures.
BestCashCow is the most comprehensive bank rate site on the Internet. Since 2005, we have monitored savings account, money market account and Certificate of Deposit rates from over 8,000 banks and 7,700 credit unions to find and display the best offers for those looking to earn and save more. You can learn more about the company here.
BestCashCow is the most comprehensive bank rate site on the Internet. Since 2005, we have monitored savings account, money market account and Certificate of Deposit rates from over 8,000 banks and 7,700 credit unions to find and display the best offers for those looking to earn and save more. You can learn more about the company here.
