In the last post, I mentioned using certificates of deposit as a way to save for either needed or wanted purchases. Certificates of deposit are just one of the tools you can use to invest your money.
What is it? It’s a time-based account offered by every bank that pays a slightly higher interest rate than do savings accounts or checking accounts. The only caveat with CDs is that they “lock” up your money for a certain amount of time. CDs can lock your money in for 3 months, 6 months, 1 year or even 5 years. Those are not the only time periods involved; they are simply examples.
Go to www.BankRate.com to find and compare CDs among several banks, states and credit unions. The rates are not as high as they used to be, but you’ll earn interest on your money nevertheless.
LearnVest.com has a great and easily-digestible article about CDs. Check out this website:
Also, as LearnVest describes, there are often penalties for accessing your money before the “due date” (maturity date) of your CD. Investing in a CD means that you cannot access that money until the set due date. That fact makes CDs a less liquid investment. This means that you cannot easily access the cash that is in the certificate of deposit. A checking account is very liquid because you just go to an ATM and withdraw the amount of money you need from it at any given time. Not so with a CD.
Note: LearnVest, other financial websites such as Suze Orman’s YF&B, and I agree on one fact: You should not start investing until you have paid a serious amount off (or the entire balance off) of credit card debt AND have started an emergency fund. See earlier posts about the need for an emergency fund and what that fund entails.
So, at this point, you may find yourself saying, “I have some extra cash that I don’t mind locking up for a few months. I want to see how this CD thing works. But how do I do that?” You walk into your bank during normal business hours. You tell the teller, “I want to open a certificate of deposit.” The teller will most likely take you to a personal banker to talk about the CD, make sure you understand the rules and the fine print, and then will open up a CD for you. You write the check or transfer the cash from one bank account to a CD. Take the paperwork, file it away, and boom! You have just invested your money! Make SURE you have reviewed the bank’s investment fine print (available online) on your own. Come into the bank knowledgeable about the product. Make sure you read at least a few articles about CDs and go to BankRate.com to research the best interest rates offered on the market. Ready, set, invest!
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