CDs

Choosing the right investment for your savings can be confusing; there are so many options out there right now. CDs (traditional certificate of deposit) are the most popular investment tool, and have been for a while. There are several different types of CDs available; traditional, bump-up, liquid, zero-coupon, callable, brokerage, and high-yield.

With a traditional CD, the investor deposits a set amount of money for a selected term and they will receive a predetermined interest rate. They will have the option of cashing out at the end of the term, or they can choose to roll over the CD into another term. As with most investments, there is an early withdraw penalty.

Bump-up CDs provide the investor with the option or bumping-up to a higher interest rate CD if one becomes available after the current one is purchased. The down side to this option is that the investor will always begin with the lowest interest rate available.

Liquid CDs are as their name suggests, they are easy to liquidate. Investors in liquid CDs have the option or withdrawing from the CD before its maturity date.

Zero-coupon CDs usually offer a higher yield, but the investor does not receive any of the interest payments until the term of the CD has ended.

Callable CDs offer the bank a way to lower the interest rate paid on the CDs that they issue. If interest rates drop within the first six months of the CD, the interest rate for the entire duration of the investment is the lower amount, but the same goes for if it was to increase.

Brokerage CD is simply an investment that is sold from a broker instead of a bank. They can be traded the same as bonds.

When banks compete to get an investor to purchase CDs from them, they sometimes offer a higher than average interest rate to entice them. These types of CDs are called High-yield.

Contributing National Payday Staff Writer

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