Finance Wanted.

By Bryan Burbank

A certificate of deposit better known as a CD is a deposit made based on time. It is a very common product that is offered to customers of credit unions and banks.

CD'S are act similar to a savings account because you are considered to be risk free because a CD is insured by the FDIC. There are some differences in savings accounts and CD'S such as a set term for maturity. The CD will have a fixed term such as 3-12 months and also will have a fixed interest rate. The reason is that for you to get the full maturity you must hold it the allotted time. At the time of maturity you will be able to withdrawal the principle amount plus the interest that has accrued.

What a financial institution does is it will give you a higher rate for agreeing for a longer term. This differs from a savings account which generally gives you a lower rate because you have instant access to that money.

Most CD'S have only fixed rates but in some cases you will see banks offering a bump up rate which will be adjustable. If you get into a situation were the interest rate is on the rise then you get into a CD that will allow you a one time adjustment.

It is good to know that there are some things you must know about interest rates. In general if you have a larger amount to deposit then you will get a higher interest rate. If you have a longer term then you can also get a higher rate over the length of the CD. If you find a smaller bank a lot of times they will offer a higher rate to attract new customers.

Basically how a CD works is you need to decide on how much you are going to deposit then when you go to the bank you make your deposit. You will then receive a book that will have the deposit amount and rate on it. You will receive periodic statements so that you know how much interest you have earned.

You can also have the interest made on the CD paid to you on a monthly basis but be aware that you will not benefit form compounding interest. Also CD'S usually have a minimum amount that they require to deposit.

If you do not cash out your CD at the end of the term then usually the bank will roll it over for another term that was the same as before

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Bryan Burbank is an Expert on Finance and has spent many years in the field.