Investing for CDs: What Is The Best Type Of Investment?

Investing into CDs is a popular investment decision made my millions of people per year. While many choose to invest into CDs for the simplicity, there are several tips to consider implementing to increase your opportunities for success. Before you select a CD, consider these topics and concepts:

  1. CD Maturity Dates– Be sure to ask the financial institution of when the CD matures. While this would seem like a fairly straightforward thing to ask when investing into CDs, it is commonly overlooked. In fact, it is best to ask the financial institution to provide you with the maturity date in writing so that you can log it into your records when you get home.
  2. Callability– When investing into CDs, be sure to ask the financial institution about any possible call features. A call feature gives the CD issuer the opportunity to call the CD prior to its maturity. The advantages to the issuer are that they can refinance debt in a low interest rate economy. The advantage to the investor is that a callable CD rate will be higher than a non-callable CD.
  3. Withdrawal Penalties– When investing into a CD, one of the most important things to inquire about is what the withdrawal penalty will be if any. Withdrawal penalties often apply when the investor chooses to liquidate the CD prior to its maturity date. Be sure to ask the financial institution about the penalty associated with your investment in the event that you withdrawal the investment from the CD.
  4. Variable Interest Rates– While the interest rates are often stated and static throughout the entire duration of a CD, it is possible that they will change. This is most applicable for a variable rate CD and if you are considering investing into them, be sure to ask how and why the CD rate may change.
  5. Stated Interest Rates– In addition to evaluating how the variable interest rate may apply, it is important to understand the basics of all other CD rates and how they will apply to you.
  6. Compare Rates– Prior to investing into a CD, be sure to compare the CD rates between investment institutions. You will often find that institutions will be fairly competitive with their CD rates in order to attract investors. Compare CD rates in local banks, financial institutions and online in order to locate the best option for your investment needs.
  7. Maturity Dates– Another significant decision that needs to be addressed when selecting CDs for your investment portfolio is the length of their maturities. While the rates are often higher for the longer term CDs, it is important to make sure that you will not need access to those funds during the duration of the investment.

While these are only a few of the tips and considerations an investor should evaluate prior to making an investment, they will provide the basis for understanding CDs, CD rates and how to select the best CDs for your investment portfolio.

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