A CD (certificate of deposit) is an investment vehicle where a set amount is given to a bank in exchange for an FDIC guaranteed rate that is compounded over a previously agreed upon length of time. For example, you may deposit $1,000 for a rate of 1.15 percent for the entirety of one year. In this example, at the end of the year the $1,000 is freed and you may either withdraw it and use it for your own personal spending, or you can roll the amount over into another CD or some other type of investment. If you need to withdraw money prior to the end of the agreed upon time, you will face a bank imposed penalty fee.
How do I gain Interest?
Interest is generally compounded daily on CDs and credited monthly. This means that your interest starts gaining more interest every day throughout the life of the CD contract. Each day, the CD increases in value. Your interest can be placed within the CD’s initial deposit where it will continue to grow even larger, or you can have the interest transferred out of the CD and into a bank account so that you can have a sort of income. This latter option is a good choice for retirees on a set income since they will be guaranteed the interest from their CD investments. A CD does not need to be a major constraint upon your savings if you choose to utilize this option.