Investing For Beginners – Free Investment Articles and Tutorials

A low-level investment that offers the security of an FDIC insured account in exchange for a lower interest rate (but higher than that of a typical savings account), a certificate of deposit or CD account is a good way for someone to get started on the path toward learning the secrets of investing money.

Certificates of deposit are considered ?time accounts? or ?investment commitments? because what you?re doing when you open one is telling the bank that you promise to keep X dollars in the account for a specific amount of time, during which the bank pays you an interest rate on the amount deposited.

The money in the CD is still yours; you?re essentially letting the bank use it for that specific amount of time. If you decide that you need to take the money out of the account before the time period is over, the bank charges you a fee.This is called a ? penalty for early withdrawal.?

A good way to take advantage of the additional interest of a certificate of deposit while minimizing the loss of liquidity that a time deposit necessitates is with a strategy called ?CD laddering.? With a CD laddering strategy the investor opens several smaller CD accounts rather than one big one.

For example, instead of one CD for $20,000, the investor may open four CDs of $5000 each for terms that increase incrementally; perhaps one, two, three, and four years. When the term of the first CD is up it can be reinvested into a new four year CD or the funds can be utilized for whatever purpose the investor deems appropriate. In this way, CD laddering is an excellent ways to make the most of the advantages and minimize the disadvantages of a certificate of deposit account.

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