Looking to invest your money in a secure way? Certificate of Deposit (CD) accounts are among the safest offers from banks, credit unions (called Share Certificates) and brokerage firms. Compared to leaving your money lying around in a savings account, CDs are a better option, especially when it comes to the interest that accumulates. If you need financial planning help around Riverside, CA, contact us today.

What is a Certificate of Deposit?

A Certificate of Deposit is a type of time deposit, whereby you agree to keep your money in an account for a fixed period of time. This can range from as little as six months to up to ten years. In exchange, you are assured a high interest return upon the completion of the contract. This contract enables the bank or credit union to use your money for its own financial needs, like investments or loans.

When in need of a CD, the easiest method is to make the investment through online banks. However, for a detailed explanation on the terms and conditions, and better advice about your options, you should consider talking to the bank’s customer service department. Certificates of Deposit are very specific. You should understand all its aspects before investing in one.

For starters, the CD’s term agreement is key and cannot be violated. You have to state the specific time period that you would like your money to stay in the account. If you withdraw before the end of that period, it will result in penalties that lead to a major loss on your end. Also, the interest offered on a CD is fixed from the beginning to the end of the term, despite any changes in the bank’s interest rates.

Upon the maturity of a CD, you are required to decide whether to renew the contract or withdraw the money for use. You can also withdraw it and re-invest in a different CD that offers better conditions or interest rates than the previous one. However, if the CD matures without any action from you, the bank will automatically renew your contract with the exact same conditions.

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Various Types of CDs

There are different types of CDs that may reduce the limits of its traditional conditions, and they are:

Bump-Up CDs

These accounts will allow you to increase the interest rate on your CD when interest rates go up. You can tell the bank to change your rates for the remaining term. Most banks allow only one bump up in a term. Its drawback, however, is that it offers a lower initial interest when compared to an ordinary Certificate of Deposit.

Liquid CDs

This allows for a withdrawal of money, without penalties, before the end of the agreed term. Its interest rate may be higher than that of a bank’s money market rate, but definitely lower than an ordinary CD’s rates. You should take into consideration how soon you may make a withdrawal, as the bank may impose penalties if it’s before a specified period.

Brokered CDs

These CDs are more convenient and better than ordinary CDs. Instead of opening accounts at different banks in order to get the best deal, all you need is a brokerage account. The interest rate here is also better, because banks that use brokerage CDs are in competition with each other. You must ensure that any brokered, or other types of CDs you invest in, are covered by the FDIC so that you get your money back in case of any misfortune with the bank.

Given the strict withdrawal policies and fixed interest rates, it may become tricky to invest in long term CDs. Laddering is an efficient strategy to enable frequent withdrawals and keeping up with increasing interest without any losses. This involves splitting your investments between different institutions and buying CDs with different terms.

For example, $50,000 can be split into five equal amounts and invested in different CDs of one, two, three, four and five year periods. This ensures that you can make frequent withdrawals and re-invest into CDs with higher interest rates.


In summary, CDs are best for low risk takers, due to their high safety levels. You should ensure that you have no immediate need for the money you are about to invest, as the best deals are long term and involve no withdrawals. Its different terms allow for a variety of choices to suit your individual needs. They guarantee peace of mind and reliable growth for your money.