A certificate of deposit (CD) is a type of investment that works pretty much the same as a savings account. Basically, you deposit money to the bank for an agreed-upon period of time, and in exchange, you are granted a fixed interest rate as earnings. CDs are considered a low-risk investment because, for one, the interest earnings are pretty much guaranteed, and secondly, they are insured by the Federal Deposit Insurance Corporation (FDIC). FDIC insures up to $250,000 per depositor, per bank, and per investment type. CDs are great if you are risk-averse and want a guaranteed return on your investment. If you’re looking to invest in CDs, check out Marcus CD rates, which are among the best in the market for rates and terms.
In this article, we will take you through a detailed, step-by-step guide on how to start investing in CDs.
Step 1: Shop around
When investing in CDs, you would naturally want to have the best deal on the market in order that your investment would grow a lot faster. Thus, the first step would be to shop around for CD offers from different banks and credit unions to find out their respective rates and terms. You can do this manually by visiting the websites of different banks and credit unions. You could also visit them on-site. Alternatively, you could also use a comparison tool or app to make this process a lot more convenient.
When shopping around, take note of the annual percentage yield (APY). This refers to the amount of interest that you will earn on your investment over a year. Aside from this, jot down the minimum deposit requirements as well as the total length of the term.
Step 2: Choose a bank or credit union
Once you have arrived at a CD offer that meets your needs and preferences, you will now have to choose a bank or credit union to open the account with. When browsing for your options, do consider factors such as the reputation of the bank or credit union, the fees that are attached to different CD transactions, and convenience features. For instance, it may be best to choose a bank that has a solid track record of financial stability, which could indicate reliability over the long term. You could also look for a bank with minimal fees or has excellent customer service.
Step 3: Open an account
When opening an account, you would need to complete an application form and provide identification, such as in the form of a driver’s license or passport. Additionally, you may also be required to present proof of residence and other pertinent personal and financial information. Depending on the bank’s setup or policy, you could accomplish this step entirely online, or you may have to visit them on-site.
Step 4: Fund the account
After successfully opening an account, you will, of course, have to fund it. You could do this by depositing money into the CD via a fund transfer from your other bank accounts or by writing a check. During this step, bear in mind the minimum deposit requirement as stipulated in your agreement with the bank or credit union. You may also deposit an amount higher than the minimum deposit requirement to better take advantage of interest rate returns. Basically, the more money you put in, the more you’ll be earning.
Step 5: Wait for the term to end.
The nature of a CD investment is that you would have to wait for the term to pass by to take advantage of the full interest rate. Once the term has ended, you can now withdraw the funds without any penalties. At the end of the CD term, you generally have two options: 1) cash out the CD or 2) reinvest the fund into a new CD. If you decide to cash out, you will receive the principal amount, which is the original amount of money you invested, along with interest gains. If you decide to reinvest, you will need to open a new CD account and transfer the funds from your current CD into the new one.