Certificate of Deposits

Certificate of Deposits, or CD’s, are also known as time deposits. Similar to savings accounts, CD’s are offered by banks, thrift shops, and financial institutions as a way for a depository to ensure that his/her money will be saved and collect interest for a given amount of time, hence the name “time deposit.”

CD’s can last for a given amount of time. Most are valued for either three months, six months, or one to five years. Once the CD has matured, you are able to take your money and the accumulated interest, and close the account. Often, people use CD’s to save money for things like houses, cars, retirement, and college educations.

Why would someone trust a bank with an amount of money used for such a wanted item? The answer is simple: CD’s are completely insured by the Federal Deposit Insurance Corporation, the FDIC, or the National Credit Union Administration, the NCUA, depending on whether or not you use a bank or credit union. That means that your money will not be lost if anything were to happen to the market or the bank itself.

Because of the large amount of money placed in CD’s, interest is usually higher because the money is not as readily available as it would be with a savings, checking, or any other type of account. Although the interest is significant, it is usually a fixed rate. Additionally, interest rates are usually defined by a set of guidelines:

1. The larger the principal, the larger the interest rate.
2. Depending on the credit, a longer term may or may not have a high interest rate.
3. Smaller financial institutions usually offer larger interest rates and vice versa.
4. Personal CD’s usually acquire higher interest than business CD’s
5. Uninsured banks and credit unions offer higher interest rates.

Now that you know about CD’s and their accompanying interest rates, let’s explore how you should go about the process of buying and maintaining your own CD.

As with most accounts, CD’s require a specific amount of money for instatement. However, unlike most other accounts, CD’s usually require a substantial amount of money. In the United States, the largest of all CD’s is called a “Jumbo CD.” Typically, these require $100,000 for opening. However, if you’re looking into this type, be careful. The FDIC only insures up to $95,000.

As with other accounts, there are different types of CD’s that may or may not apply to your specific needs. To better understand which CD is right for you, read below.

1. Callable CD’s

A callable CD is one that is similar to a traditional CD, but is mandated by the institution. Depending on risk level associated with this type of CD, a bank can determine if the CD is worth having or if it poses a risk to the institution. Because banks make money by selling these, you should make sure that, if you use this type of CD, your money is not at risk.

2. Brokered CD’s

A brokered CD is a CD that has been negotiated by a brokerage firm. Often, brokers are better informed about the market, and can negotiate a higher interest rate for your CD, as well as bringing more money to the institution.

Unlike a personal CD, a brokered CD is usually held by many other investors who each own a piece of the investment. Also like a traditional CD, brokers can withdraw money or resell the CD before it matures without fear of penalty.

After purchasing a CD, a depository will receive a paper certificate also known as a passbook. This will show the periodic bank statements of the CD. Additionally, when scheduling interest payments, a depository can arrange for the funds to be taken from other accounts, or mailed to him/her. While some institutions allow the interest to be compounded into one, or a few large payments, most advise on smaller, lighter ones that can be managed through other accounts or through the mail.

After a given amount of months or years, depending on your preference, your CD has matured, and it’s now time to make your dream reality. So how do you close your CD?

Often, the financial institution where you have your CD will mail you a letter, stating that your CD is or will be maturing shortly. Most institutions will then give the CD holder the choice of collecting the interest, or letting it roll over into another CD. If you are unable to collect your money immediately, don’t panic. There is a window period where a CD holder is able to cash in the CD without penalty. However, make sure this is done within the window because if not, the money will roll into another CD. If this happens, a holder cannot withdraw money without losing interest for a given amount of time.


Now that you’re familiar with the generalities and workings of a CD, it’s time to understand the terms associated with CD’s. Before opening your own CD, it is important to take all these regulations into account. That way, you’ll be able to really know if a CD is the right place for your money.

Unlike the arched series of stairs that allows you to reach high places, these types of ladders may lead to trouble. Although interest increases of the time of the CD, the economy where you live may not. A ladder is a CD strategy for payments that allows a depositor to invest money over a number of years instead of all at once. By doing so, a depositor hopes that his/her money will accumulate the highest interest rates once the CD reaches maturity. Ladders must be set up and run by depositors, and not the financial institution. Because of this, many depositors have a number of CD’s at different institutions, which can be risky, depending on the size of the bank or credit union.

In the United States, when a depositor opens a CD, an institution must state the penalty if a depositor were to withdraw his/her money before the CD is matured. By doing so, the bank hopes that this penalty will deter the depositor from withdraw his/her money before the CD is mature, and, thereby, ruining the chances at obtaining the highest possible interest rate.

In the United States, The FDIC insures up to $100,000 for each individual checking and/or savings accounts and up to $200,000 for joint accounts. However, this insurance can vary, depending on how the financial institution and family structures of the account(s).

If you have more money than this, many banks are privately insured as well. However, this is only done if the bank as a substantial amount of its users who save more than the FDIC will insure. Additionally, the “Certificate of Deposit Account Registry Service” can insure about to 50 million dollars in CD’s, even if the financial institution being used is already insured by the FDIC.

While CD’s are great ways to save money, make sure you’re fully capable of supporting one before you invest. It’s best to know if you fit the checklist below before opening an account:

1. The terms are “callable,” meaning your financial institution can close the CD before it matures.
2. The interest can be paid periodically or when it has accumulated in full.
3. The CD can start earning interest from either the date it was opened, monthly, or quarterly.
4. If you withdraw before principal, the CD may be closed.
5. Withdrawal penalties are stated when you open a CD. Remember, you want to save your money and collect the accumulated interest- not spend it.
6. A fee will be issued for a withdrawal or closure before maturity.
7. Depending on the financial institution, the CD may or may not have a grace period after it matures. Make sure you know this or you’re money will just be placed into another CD and you’ll have to wait even longer before you can obtain it.