A certificate of deposit or CD is a kind of money-saving option offered by a bank that allows saving a fixed amount of money for a specified period for which the bank pays interest in exchange. The customer receives the interest amount and money invested when the CD is redeemed. Before investing money via this option, continue reading to learn about the types, advantages, cons, and highest CD rates.

How to start using CD?
Opening a certificate of deposit is pretty simple and not that different from opening a savings account. However, before opening a CD, it is imperative to do some research. It is advisable to open a CD in an insured financial institution. Once the institution is finalized, the next step is to choose a type of CD, which depends on the market risks. Determine the amount of money to be invested and the length of the term. The longer the term, the higher the CD interest rate.

How does CD work?
A CD is different from a savings account. The bank offers to keep cash with it for a specific period. In exchange, the bank offers a higher interest rate on the invested amount than on that lying in a savings account. At the end of the term, the bank returns the amount you invested along with a sum of money yielded from interest. The tenure and interest rate determine the returns. The maturity of a CD varies from one month to five years. They are automatically renewed for the next term if not withdrawn during the grace period. However, withdrawals are not advisable before the end of the term, and if the money is withdrawn before maturity, a bank is liable to impose a penalty.

Types of CD
A liquid or no penalty CD allows an investor to withdraw the funds early without any penalty and move the funds to a higher paying CD. However, they may have low-interest rates, a restricted time window, or a withdrawal limit. Brokered CDs are purchased through a brokerage firm or sales rep. They are riskier than the ones offered by a bank. Jumbo CDs require a high balance between $100,000 and $250,000. They are the safest place to keep a large number of funds and receive a higher interest rate. The bump-up CD gives an option to increase the annual percentage yield during the maturity of the term. They are similar to the no-penalty CDs minus the low-interest rates. If interest rates rise, an investor can keep the existing account and switch to the new one.

Pros and cons of CDs
A CD is more secure than the stock market and more payable than a savings account. They are known for their predictability and guaranteed fixed income in the desired amount of time. Unlike other savings options, CDs assure fixed returns. No matter the ups and downs in the market, a certificate of deposit will ensure the returns are decided while opening up the account. A CD typically comes with a CD ladder, an investing strategy where investments are made for increasing lengths. This enables an investor to use some amount while keeping some investments intact. Coming to the cons of CD, one of its main disadvantages is that the sum invested cannot be liquidated before maturity without a penalty. This type of savings typically earns less than stocks and bonds. There is also a fixed rate of return even if interest rates rise during the term.

Highest CD rates by term
Many options are available in the market for a certificate of deposit investments. If you are looking for the minimum period investments, the best CDs rates are offered by Luana Savings Bank, M.Y. Safra Bank, or Spectrum Federal Credit Union at around 0.50-0.60% for $500 and $1,000 investment. In the case of 1-year long investments, the best plans are offered by MapleMark Bank with 1.00 % APY for investing a minimum of $25,000; and Colorado Federal Savings Bank with 0.90% APY on $5,000. If you are looking to invest for an extended period, KS State Bank and Third Federal Savings & Loan have good plans for a 3-year long investment with 1.60% and 1.50% APY, respectively, on a minimum of $500 worth of investment. You can opt for a 5-year to 10-year lock-in period as well. However, these interest rates are subject to fluctuation. Please check out the current rates on the bank or credit union’s official website before starting an investment.