Options
CDs
What they are and how they
work
- Bank pays a fixed amount of interest
for a fixed amount of money during
a fixed amount of time.
Benefits
- No risk
- Simple
- No fees
- Offers higher interest rates
than savings accounts
Trade-offs
- Restricted access to your money
- Withdrawal penalty if cashed
before expiration date (penalty
might be higher than the interest
earned)
Types of certificates
of deposit
- Rising-rate CDs with higher rates
at various intervals, such as every
six months.
- Stock-indexed CDs with earnings
based on the stock market.
- Callable CDs with higher rates
and long-term maturities, as high
as 10-15 years. However, the bank
may "call" the account after a
stipulated period, such as one
or two years, if interest rates
drop.
- Global CDs combine higher interest
with a hedge on future changes
in the dollar compared to other
currencies.
- Promotional CDs attempt to attract
savers with gifts or special rates.
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