Investing in CDs

Investing in CDs (Certificates of Deposit) is a popular way to invest to financial instruments with high liquidity and money market characteristics.

The characteristics that are most descriptive of CDs is that they are low-risk investments that can easily be converted into cash.

What makes for many investors these investment vehicles even more appealing, is that they, unlike other investments, feature federal deposit insurance up to $100,000.

When you purchase a CD, the fixed investment period of time is typically six months, one year, five years, or more.

For your investment, the issuing bank pays you interest, typically at regular, pre-fixed intervals.

If you decide to cash in or redeem your CD, you will receive the money you originally invested plus any accrued interest on your paper.

Before maturity, however, the terms may include you paying an "early withdrawal" penalty on the monies owned to you by the bank.

The CDs are available for purchase through most banks and many brokerages.

In addition, most CDs pay a fixed interest rate until they reach maturity. You may, if you wish, choose among variable rate CDs, long-term CDs, and CDs with special redemption features in the event the owner dies.

Just like in bonds, some long-term, high-yield CDs have a "call" feature, which means that the issuing bank may choose to terminate the CD early, typically after one year or other fixed period of time.

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