Certificate of Deposits: Different Types and its attractive Advantages

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.
Post Your Ad Here
Comments