tradingdata.net

CD’s, or certificates of deposit, are virtually a risk free form of investing. CD’s are bought from banks for certain amounts of money. Since they are issued by banks, anything less than $100,000 is insured by the government. The bank then promises to pay you a fixed interest rate on that money for a fixed period of time. An example of this would be buying a 24 month CD that pays three percent for $2,500. You would have to keep the CD for the entire 24 month period to get the interest. If you cash out earlier than the term, a penalty will be imposed for anywhere from three to six months of interest payments. This “penalty for early withdrawal” is due whether any interest was paid or not.

Some banks may have minimum amounts in which CD’s can be bought. The interest earned might be paid monthly, quarterly, annually or when the CD matures. The interest is never added to the amount of the CD because the CD amount is fixed. Interest payments could be paid to you in the form of a check, or deposited into another account that you specify.