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Certificates of Deposit (CD), succinctly stated, are a time-bound deposit carrying a specified rate of interest but attracting a penalty clause for premature withdrawal. A safe high yield investing CD is indeed the right choice for the less adventurous investors who wish to avoid the busy, high risk and speculative stock market investments.
The basic attraction of CD is that in today’s acutely competitive market scenario, banks and credit unions keep increasing the interest rate to lure more investors. Banks even go a step further and offer certain extra perks to those who invest in CDs. You should, however, do a bit of pre-study to ascertain which bank or credit union offers the highest rate of interest before investing in a high yield certificate of deposit.
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It would be an over-simplification to think of CDs as a safe high yield investing opportunity where you merely invest and after the prescribed period of time, romp home richer. There are some precautions you must observe to ensure you earn and not lose investing in CDs.
As far as possible, avoid going through a broker who may mislead you into a wrong deal. It is safer to handle things yourself and before you finally sign-up, ask a bank representative to unambiguously explain to you the terms of the CD. Do not invest unless you are fully satisfied that all your doubts have been dispelled and there are no hidden loopholes.
Never make the mistake of prematurely withdrawing the money before the due date – whatever the compulsions - as you will have to pay a hefty penalty that will eat into your interest earnings.
If you’re looking for a safe high yield investing CD, then opt for the right bank as you can really become richer after the prescribed number of years without any undue strain of managing the account.
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Advantages of Investing in CDs
- A high yield CD is one of the safest investment options available today in the financial market.
- There is little to worry as most CDs are FDIC-insured up to a certain limit.
- CDs generally pay higher interest rates when compared with several other low-risk investments.
- Attracts compound interest whereby your interest earnings also continuously earn interest.
- There are no fees to open a CD.
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Disadvantage of Investing in CDs
Investing in high yield certificates of deposit entails locking up your money for a given period of time and if you withdraw prematurely, then you will have to pay penalties as applicable. This is the only disadvantage and, therefore, you must be determined that you will never withdraw until the maturity date when investing in CDs.
This disincentive of blocking the money can also be construed as a blessing in disguise as you will, as far as possible, avoid availing this money even in times of financial distress.
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Most safe high yield investing CDs provide an automatic renewal facility and you can avail this feature if you can afford to lock your money for further time periods and earn interest. If you wish to exercise your discretion and opt for renewal, please know the CD will not attract interest after maturity until the time it is renewed.
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Image Credit: MNBL - Cert of Deposit - http://commons.wikimedia.org/wiki/File:MNBL-Cert_of_Deposit.jpg