Certificate of deposit also known as CD's are deposit's made based on time. These are very useful products and they are offered to many types of customers who have accounts at credit unions and banks.
CD's are very similar to having a savings account because these types of deposits are considered to be without risk mainly because a Certificate of Deposit is insured by the FDIC. You will find differences from savings accounts to CD'a such as a exact term for maturity. The CD will have a non-variable term such as 3-12 months and also will have a real 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.
Author Source: Bryan Burbank
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