Sep 20

A Guest Post Today -

When trying to find which Certificate of Deposit (CD) is best for you, there’s really no right answer as to which one is the best. However, there are ones that may be more advantageous for you when compared to others.

As it stands, more people continue to opt for the traditional CD, but there are newer ones that have been rolled out by banks and credit unions that are much different. Here is a look at the different type of CDs offered right now:

Traditional

The traditional remains popular because it is so straightforward. You place a predetermined amount of cash in the CD for a predetermined amount of time and interest. Once the time span has ended (matured), you can either take out the cash that is owed to you, or roll it back into another CD.

For most banks, you can deposit more money while the CD is still in its term. However, if you want to take the money out, there’s likely going to be a large penalty for doing so. There aren’t laws in place to stop a bank from penalizing you, but they do have to tell you what it will be before you can get the CD.

Make sure to find out what the interest is going to be before jumping in and look at the best best 6 month CD rates at banks being offered right now.

Zero Coupon

When it comes to CDs, zero coupon ones aren’t very well known by most investors. It is very similar to that of a zero coupon bond, in the fact that you can get it discounted to the maturity value.

As a quick scenario, a 12 year CD of $100k can be bought for $50k at 6% interest. During the first decade, you would not get any interest. However, after the 12 years have passed, you will collect $100k which makes for a great investment.

Bump Up

What makes bump up CDs appealing is the ability to use a variable rate that continues to rise. As an example, you can buy a CD that lasts for two years. If the bank were to offer a CD for a higher rate to new customers after a certain time frame, then you can get your rate to match the new one.

There are a couple of things to consider with this. The first is that you are likely to have the ability to raise your rate just once. The other is that the beginning rate is possibly going to be lower than that of a more traditional CD.

Liquid CD

A liquid CD grants you the ability to take out money from your CD without being charged any penalty amount. There is likely going to be a minimum amount set as your balance to take advantage of this, but that shouldn’t be a problem.

Traditional CDs typically have higher rates than liquid CDs, but you get the flexibility and freedom that the traditional can not offer. You will want to find out how soon you can take money out of your CD first, as law states that it must be at least seven days. The last thing you need to know about liquid CDs is that there may be a set amount of times you can withdraw money.

Now that you know which types of CDs are offered to customers, it’s time to shop around. There is a lot to consider but if you find one that fits your financial interests the closest, it is sure to be a good investment. Do your homework and you will see some solid returns down the road.

written by Joe \\ tags: ,

One Response to “Which Certificate of Deposit Type is the Best?”

  1. Best This Week In Personal Finance 8/22 | Yes, I Am Cheap Says:

    […] handle the heavy lifting for me. Joe Taxpayer had a great article this week on CD’s entitled, Which Certificate of Deposit Type is the Best?   Yes, CD’s still exist.  They might not pay as much as they used to, but they’re […]

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