Certificate of Deposits: Different Types and its attractive Advantages

by Ben Stokes Freelance Blogger

During investing money, every investor at least once thinks about the security of their invested fund. As the share market is quite volatile and there is no assurance of getting a high return, the investment risk is quite high. While investing money in the share market is quite risky, a certificate of deposit is one of the safest among all these available instruments.

Generally, intermediaries like banks, credit unions are offering such investment instruments to their valuable customers. When it comes to the matter of CD, almost everyone would like to invest because it offers high returns more than a savings account.

What is the certificate of deposits (CD)?

It is an investment instrument available in the money market. Generally, people with bank accounts can easily utilize this investment instrument by keeping money in a bank account for a particular timeframe. Naturally, that time span is considered a lock-in period.

An investor of CD must keep the money locked for a minimum of 2 years to a maximum of 5 years. However, throughout these interval years, that investor earns a good amount of interest. After completing the lock-in period, the investor can get back his entire fund with interest.

A bank completes this entire process, so investor’s money always remains safe. Moreover, an investor gets an assured return too. For these reasons, many investors even borrow provident loans to invest in the money market through CD.

Different types of CD

Certainly, there are many reasons for its increasing popularity. However, among them, one of the most important ones is its variety. Different types of CDs are available to fulfil the requirement of investors. These are,

         i.            Liquid Certificate of Deposits

The demand for CD only decreased after introducing those investing instruments, which offer no lock-in period. Investors often want to avoid such lock in the period. Before the demand for this instrument completely comes down, such a Liquid CD takes place.

It is a type of CD, which offers no penalty facility even after breaking the bond during the lock-in period. Due to this add-on, an investor can easily make more profit by shifting the fund from one CD to another.

       ii.            Bump-up Certificate of Deposits

It is quite similar to a liquid CD. This type of investment will enable the chance of making more profit by offering the ease of moving fun from one CD to another. However, to enjoy this facility, an investor must inform his bank about his wish.

However, before switching to liquid or bump-up CD, you must remember that both of them can start producing less rate of return at the initial stage. Only at the end of the lock-in period, an investor starts gaining good interest.

     iii.            Step-up Certificate of Deposits

Another profitable CD is step up. Gradually, many investors would like to invest money in step up due to the high-interest rate. People find it more because they gave a really higher rate of interest than promised at the time of investment.

     iv.            Broker certificate of Deposits

Generally, this type o CD is available only after having a brokerage account. An investor needs to purchase broker CDs from different issuers. In this way, an investor can choose his desirable CD as per the wish. But one should remember that it contains some risk factors.

If an investor fails to choose the right one, then it will be like wasting money. Moreover, an investor must ensure that the issuer must come under the umbrella of FDIC.

Advantages of investing money in CD

Undoubtedly, after reading different types of CDs, it is quite inevitable that investing money through this instrument is ultimately beneficial. Some of the advantages include,

a)       No question of losing the principal amount

While spending money on other investment instruments, every investor thinks at least for once whether they will get back the money or not. There is no worry with CD. The primary reason for such worrying thinking is the money is invested through the bank.

Another reason for staying worriless is all the brokers or issuers have registered with FDIC. As a result, even if an investor loses all his money, it does not mean that all funds have gone. According to FDIC, up to 250000 pounds is safe for investment.

b)       Good return

Although every market-linked plan always promises about higher return, it becomes hard to match the amount with promised one at the end of the investment period. In such a scenario, only CD will provide a good rate of interest. For this reason, even while people apply for a loan to invest in CD, lenders guaranteed loan approval with no credit check.

Therefore, if you invest money in CD, it is quite assured that you will get a good return without any doubt. After which, you can easily repay the loan borrowed due to investment. However, start investing money in CD without wasting time. 

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About Ben Stokes Junior   Freelance Blogger

1 connections, 0 recommendations, 18 honor points.
Joined APSense since, January 12th, 2021, From London, United Kingdom.

Created on Aug 2nd 2021 09:51. Viewed 115 times.


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