A CD is a type of investment available from banks or credit unions, similar to traditional savings accounts, but CDs provide a higher interest rate. These are the safest investments as your principal amount is secure and you earn a fixed interest rate until maturity. A CD holder let the financial institution use their funds for a set period of time, and if the holder wants to access their funds before maturity, he may pay an early withdrawal penalty.

‍

How Certificates of Deposit (CDs) Work?

You can open a Certificate of deposit with the same procedure of opening a standard bank account. Here are some key factors to consider while opening a CDs.

1. Interest Rate: Interest rate of a CD is fixed in most cases, but there are some CDs available with variable interest rates also. CDs with variable rate can hurt you if the rate rises after you’re locked in. CDs with fixed rate are more considerable as you know how much money you can earn by the end of the term.
2. Term: This is the length of time that you agree to leave your funds deposited to avoid any penalty, it could be a 6-month period or a year period. You can withdraw your funds after the completion of your terms without any penalties.
3. Principal: The amount with that you are going to do the initial investment while opening a CD.
4. Financial institution: The bank or other financial institution where you are going to open a CD and their terms and conditions.

‍

Features of Certificate of Deposit 

Here are the key features of a Certificate of Deposit (CD) in the US:

1. Fixed Term: CDs have a fixed maturity period, ranging from a few months to several years, during which the funds are locked in without access to withdrawals without penalty.
2. Guaranteed Returns: They offer a fixed interest rate, generally higher than regular savings accounts, providing predictable returns over the CD's term.
3. FDIC Insurance: CDs issued by FDIC-member banks are insured up to $250,000 per depositor per institution, protecting your principal and accrued interest against bank failure.
4. Liquidity Options: While early withdrawal typically incurs penalties, some CDs offer "liquid" or "no-penalty" options, allowing early access to funds under certain conditions.
5. Interest Payment Options: Interest can be paid periodically (monthly, quarterly) or at maturity, depending on the CD's terms.
6. Minimum Deposit Requirements: Banks may require a minimum deposit to open a CD, which can vary from a few hundred to several thousand dollars.
7. Automatic Renewal: At maturity, CDs may automatically renew unless instructed otherwise, allowing for continued investment without additional paperwork.
8. Variety of Terms: CDs come in various terms (short-term, medium-term, long-term) to suit different financial goals and time horizons of investors.

‍

How to buy a CD in US?

Buying a Certificate of Deposit (CD) in the US involves several straightforward steps:

1. Choose a Financial Institution: Research banks or credit unions that offer CDs. Consider factors such as the institution's reputation, CD terms offered, interest rates, and FDIC or NCUA insurance coverage.
2. Compare CD Options: Review the terms and conditions of various CDs available. Compare interest rates, maturity periods (term lengths), minimum deposit requirements, and any special features such as early withdrawal penalties or interest payment frequencies.
3. Open an Account: Once you've selected a CD that meets your criteria, you'll need to open an account with the financial institution offering the CD. This can usually be done online, by phone, or in person at a branch.
4. Fund Your CD: Transfer funds into your new CD account to meet the minimum deposit requirement. This can typically be done via electronic transfer from your existing bank account or by depositing a check.
5. Confirm Terms and Conditions: Review and confirm the terms of your CD, including the interest rate, maturity date, and any penalties for early withdrawal.
6. Receive Confirmation: After funding your CD, you'll receive confirmation of your purchase, typically in the form of a certificate or a confirmation notice from the financial institution.

‍

Why Should I Open a CD?

CDs provide fixed interest rates that typically exceed those offered by savings, checking, or money market accounts, making them an appealing choice for savers seeking higher returns with minimal risk. Longer terms generally yield higher rates, enhancing their attractiveness for conservative investors.

‍

‍Are CDs Safe?

CDs are among the most secure investment options available for several reasons. Firstly, their interest rates are fixed and guaranteed. Secondly, CD investments benefit from federal insurance coverage provided by either the Federal Deposit Insurance Corporation (FDIC) for bank accounts or the National Credit Union Administration (NCUA) for credit union accounts. This insurance safeguards up to $250,000 of your funds per institution, ensuring protection in the unlikely event of an institution's failure.

Bottom line

Certificates of Deposit (CDs) are a safe and secure savings option with a fixed interest rate that's typically higher than regular savings accounts. They're ideal for those seeking predictable returns with minimal risk, especially for short-term or long-term savings goals. Consider factors like interest rates, terms, and minimum deposits when choosing a CD that aligns with your financial needs. You can also consider Compound real estate bonds for high and predictable returns on your investment and flexibility to withdraw your funds anytime.