'Money: It's Personal' — What is a certificate of deposit?
SAN ANTONIO – If you're thinking about how you'll spend your tax return, you may consider investing it or saving it.
Some consumers decide to put their money in certificate of deposit accounts to help grow their cash.
But what exactly is a CD?
The U.S. Securities and Exchange Commission says it’s a savings account that holds a fixed amount of money for a fixed period of time.
Some CDs can be as short as six months; others can be for longer periods, such as five years.
The bank will pay you interest on the money you invested, and you'll get your initial investment back when your CD matures. But the frequency of the interest payments depends on your bank.
The SEC says a certificate of deposit is considered one of the safest savings options, but it does come with some risk. If the inflation rate grows faster than your money, it'll lower your real returns over time.
If you buy your CD through a bank that is federally insured, the SEC says, all accounts in your name at that bank will be covered up to $250,000.
Here are a few things to remember when you're opening a new certificate of deposit account:
Your disclosure statement should include your interest rate and whether it's a fixed or variable rate.
It should also tell you when the bank will pay the interest on your CD and the way you'll be receiving that payment.
Your bank should also be able to tell you if there are any penalties for withdrawing your money early and when your CD will mature.
For more information on how CDs work, click here to visit the SEC’s website.
The SEC also has a tool that helps you calculate compound interest. Click here to access the SEC’s compound calculator.
If you have any money questions you’d like us to answer, click here to submit them.
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