Monday, November 25, 2013

Certificates of Deposit

I'm pretty sure certificates of deposit aren't actual certificates anymore.
Read this if: 

1) You don't know what certificates of deposit are. 
2) You want to earn a little interest on your money with no risk of losing any. 


When I first started investing, I wanted two things: I didn't want to lose my money, but I also didn't want to let it sit there. I knew that the less risk I was willing to take, the lower the return I would be able to get. My risk tolerance has increased significantly over the years, but I know a lot of people who are still iffy about risking their money. 

Something that I would recommend for people with a low risk tolerance is called a certificate of deposit (CD).

How do they work?

Basically, when you buy a CD you are agreeing to give someone else your money for a specified amount of time, and that money will earn interest at a specified rate. If you go to a bank's website, you can find a listing of their available CDs. Each listing will tell you how long the CD takes to get to "maturity." You can get CDs that mature in months, a year, five years, etc. 

What are the benefits? 

CDs can offer higher interest rates than savings accounts or money market accounts, and depending on the type of CD, the rate could be fixed (meaning it won't change while you hold the CD). This is good because you don't have to worry about the economy tanking and thus, your interest rate along with it. Keep in mind, there are CDs that have variable rates, and how they vary depends on the specific CD you have. 

Any downsides? 

Some people do not like having their money tied up for a long period of time. There are penalties for early withdrawal, so if you get a CD, make sure you are positive you won't need that money for the time you commit for. 

Another thing to watch out for is the minimum amount. Some CDs have a minimum requirement of thousands of dollars, but you can definitely find ones for lower. 

Bottom Line

If you have money you know you won't use, a CD is the safest thing to get while still earning considerable interest, but not very convenient if you might need to use that money any time before the CD maturity date. 


Plan of Action: 

1) Check out the FDIC website for more information about CDs: 


Would you consider a CD? Why or why not? Let me know in the comments. 

As always, contact me with questions or suggestions! You can either comment directly on the post or send me an email to 

Photo Credit:  Dennis Wong via photopin cc


  1. Hi sherwood,

    Thanks for your advice as always! Do you mind if I make a post featuring your comment?


  2. You may use my comments on this blog in any way you see fit!