Certificate of Deposit (CD)

A low-risk investment in the form of a depository account that usual provides returns close to short-term treasury notes. Insured by the FDIC for up to $250,000, CDs are generally available in three-month, six-month, one-year or five-year terms. Interest earned varies accordingly, and rates are generally fixed once established. Capital is repaid in full, plus interest earned, upon maturity.

THE PROs

  •  Low risk
  •  A sure rate of return
  •  FDIC insured

THE CONs

  • Illiquid—inaccessible until maturity
  • Lower returns generally than other income-oriented investments

KEY QUESTIONS

1. What is the withdrawal penalty fee associated with this CD?

2. What is the minimum deposit amount for additional investments to the CD?

3. Is my CD callable? If so, what premium rate are you paying me for that privilege?

4. Is my investment subject to an automatic rollover?

5. Do I have the option to raise the rate on my CD if rates on new CDs are higher during the term of my CD?

RELEVANT VIDEOS

Ehow.com explains CD basics.

A mathematics professor explains the calculations behind a CD.

Annuity Think Tank delivers the goods on CDs and more.