A certificate of deposit (CD) is an excellent way to save money and earn a higher interest rate than you would with most money market investments. The drawback is that CDs are not liquid; you are tying up funds for a period of time, and if you cash out early you'll lose interest and possibly principal.
CDs are time-based, fixed-income investments that are most often issued by banks but can be purchased through brokerages.
Typically, you invest a fixed amount of money for a predetermined amount of time referred to as the term, and you are guaranteed principal in addition to a fixed amount of interest, which you receive periodically throughout the term.
When the term expires you can cash out the principal and interest, or roll over the CD for an additional term. You can opt to withdraw the interest payments as they are received.
CDs can be purchased for terms of almost any duration although the most popular are between three months and five years. Generally speaking, the longer you allow the bank to use your money, the higher your interest rate. Usually, it is not a good plan to purchase a CD with a term of more than five years. The interest rate situation could change dramatically during that time and you could get trapped with a long-term, low-rate CD.
CDs are deposit accounts and are insured by the FDIC up to $250,000.
Please call your RSA representative today to discuss your Certificate of Deposit needs.