WHAT DO YOU KNOW ABOUT "CDS" AND WHY IT HAD MADE WHAT WAS THE REASONS BEHIND IT.
Answers
Explanation:
A certificate of deposit (CD) is a product offered by banks and credit unions that offers an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Almost all consumer financial institutions offer them, although it’s up to each bank which CD terms it wants to offer, how much higher the rate will be vs. the bank’s savings and money market products, and what penalties it applies for early withdrawal.
Shopping around is crucial to finding the best CD rates because different financial institutions offer a surprisingly wide range. Your brick-and-mortar bank might pay a pittance on even long-term CDs, for example, while an online bank or local credit union might pay three to five times the national average. Meanwhile, some of the best rates come from special promotions, occasionally with unusual durations such as 13 or 21 months, rather than the more common terms based on 3, 6, or 18 months or full-year increments.
Where Can I Get a CD?
Virtually every bank and credit union offers at least one certificate of deposit, and most have a wide array of terms on offer. So not only is your local brick-and-mortar bank an outlet, but so is every bank or credit union in your community, as well as every bank that accepts customers nationwide via the internet.
In addition, you can open CDs through your brokerage account. We’ll explain more on these later, but in short, these are bank certificates as well. Your brokerage firm simply serves as a middleman.
Why It’s Important to Shop Around
Before the internet, your CD choices were essentially limited to what you could find in your community. But with the explosion of online rate shopping, plus the proliferation of internet banks—and traditional banks opening online portals—the number of CDs one can consider is astounding. It’s now possible to shop for CDs from about 150 banks that accept customers nationwide and allow for opening an account online or through the mail. In addition to that, you’ll have access to a number of regional and state banks, as well as credit unions, that will do business with you based on your residency in their state.
How Much Do I Need to Open a CD?
Each bank and credit union establishes a minimum deposit required to open each CD on its menu. Sometimes a bank will set a minimum deposit policy across all CD terms it offers, while some will instead offer rate tiers, providing a higher APY to those who meet higher minimum deposits.
In theory, having more funds available to deposit will earn you a higher return. But in practice, this doesn’t always hold true. For instance, having $25,000 ready for deposit will occasionally enable you to open a CD that others with lesser amounts could not. But many of the Top 10 rates in each CD term can be achieved with modest investments of just $500 or $1,000. And the vast majority of top rates are available to anyone with at least $10,000. A $25,000 deposit is only occasionally required for a top rate.
Which CD Term Should I Choose?
There are two important considerations when deciding how long a CD term is right for you. The first centers on your plans for the money. If it’s for a specific goal or project, the expected start of that project will help you determine your maximum CD term length. In contrast, if you’re just socking away cash for which you don’t have a specific purpose in mind, you may opt for a longer term so as to maximize
At the outset, you take the amount of money you want to invest in CDs and divide it by five. You then put one-fifth of the funds into a top-earning 1-year CD, another fifth into a top 2-year CD, another into a 3-year CD, and so forth through a 5-year CD. Let’s say you have $25,000 available. That would give you five CDs of varying length, each with a value of $5,000.
Then, when the first CD matures in a year, you take the resulting funds and open a top-rate 5-year CD. A year later, your initial 2-year CD will mature, and you’ll invest those funds into another 5-year CD. You continue doing this every year with whichever CD is maturing, until you end up with a portfolio of five CDs all earning 5-year APYs, but with one of them maturing every 12 months, keeping your money a bit more accessible than if all of it were locked up for a full
Why You Should Be Open to Odd-Term CDs
Whether you’re building a CD ladder or are saving towards a specific goal with a known timeline, stay open-minded to the very best CD deals you find rather than getting hung up on a specific term. The reason this is important is that, when some banks and credit unions offer a promotional CD to attract new customers, they may stipulate an unconventional term.
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