What Is A Certificate Of Deposit?

A Certificate of Deposit is a special type of deposit account which is usually held with a commercial bank for a fixed term. These certificate of deposit accounts typically offer considerably higher interest rates than normal bank accounts combined with low investment risk due to federal deposit insurance on amounts upto $100,000.

These savings certificates entitle the bearer (you) to receive interest on your deposit which is usually paid at regular intervals. Interest can be accrued and paid out at the maturity date or paid directly to the bearer whilst the deposit is still with the bank.

At the maturity date, the initial deposit aswell as the interest is paid out in full. It is possible to redeem your Certificate of Deposit (CD) before the maturity date, however most Certificate of Deposit accounts have an early withdrawl penalty or you may have to hand over a portion of the interest your Certificate of Deposit has earned to date.

It is a good idea to check for this information with the institution offering the Certificate of Deposit before buying it.

The advantages of investing in Certificates of Deposit (CD) are:

• It is a relatively low risk investment, especially when compared to more volatile investment opportunities such as stocks investing.

• They are relatively liquid – although you may be subject to penalty payments.

With the rising popularity of high interest online savings accounts, however, Certificate of Deposit have perhaps lost some of their appeal, since most online savings account can offer interest rates which are similar to Certificate of Deposit rates but offer access to your money alot quicker. Furthermore, in almost all cases, with online savings account charge no penalties for accessing your money.

A Certificate Of Deposit can also be referred to as a term deposit.