CD’s: Not What You Think

 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.




  • No risk
  • Simple
  • No fees
  • Offers higher interest rates than savings accounts.

Trade Off

  • 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

1. Rising-rate CDs with higher rates at various intervals, such as every six months.

2. Stock-indexed CDs with earnings based on the stock market.

3. 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.

4. Global CDs combine higher interest with a hedge on future changes in the dollar compared to other currencies.

5. Promotional CDs attempt to attract savers with gifts or special rates.

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