Advice for investors: Certificate of Deposit
Investors are always hunting for a rewarding place to deposit their funds or savings, although the aims of growth or security may change along with the prevailing economic situation and financial outlook. In the current times of low interest rates and global uncertainty, one possibility to consider is a certificate of deposit.
What is a certificate of deposit?
In simple terms, a certificate of deposit is an investment whereby an agreed rate of interest is paid on a fixed deposit that is invested for a fixed period of time. The arrangement is relatively straightforward, as the terms of the investment are known at the beginning of the investment period. The rate of interest offered might vary according to the size of the deposit to be invested and according to the amount of time for which it is to be invested. Penalties may be incurred if the funds are accessed before the agreed period of time has elapsed.
What are the benefits of choosing a certificate of deposit?
The main advantage to an investor in choosing a certificate of deposit is that they can know for certain what the financial gain will be and when this will come to maturity. Especially at times when there is uncertainty surrounding the direction of rates of borrowing and lending, the security of having a fixed rate of interest is a tempting proposition to many investors. Furthermore, the capital invested in a certificate of deposit is secure in the sense that it is not tied to market fluctuations. In most cases, the capital invested is also guaranteed through insurance, and is thus fully secured against institutional difficulties at the bank where the funds are deposited. This combination of benefits means that a certificate of deposit can be a good choice for an investor with a fixed amount of cash that they know will not be required for other purposes over a known length of time. This period may be just a few months, or it may be several years.
Which certificate of deposit is the best choice?
Every investment situation is unique, and there can be no blanket answer concerning the best certificate of deposit to choose. Under one set of circumstances, a longer term of deposit with a higher rate might be advisable, to make the most of the interest rates available. Under other circumstances, a larger capital investment for a shorter period of time might be wise in order to maintain more flexibility in investment over the longer term.
It is possible, in evaluating the different options available in terms of CD rates, to make use of a CD rates calculator, as provided by a financial institution. Banks make such a CD rates calculator available so that investors can ensure that they are getting the best terms available, which often leads the investment decision. Although each individual will have different financial goals and financial needs, this tool can help to determine whether a certificate of deposit is the right choice, and which certificate of deposit is the best option under the given circumstances.