Those who have been investing their money long enough are probably already familiar with certificates of deposit.
However, for those who are not, here is a brief explanation on what a certificate of deposit is and how it works.
A certificate of deposit is an almost risk-free investment method that allows you to profit off your money.
You can compare a Certificate of Deposit to a time deposit, wherein you, the investor, deposit a certain fixed amount of money to a financial institution for a fixed period of time.
Since you are discouraged to alter or withdraw this money before the fixed period of time elapses or before the money matures, financial institutions offer higher interest rates as some sort of 'payment' for your inability to withdraw or alter that said amount during the fixed period.
Now, a certificate of deposit is a great idea but of course, there are certain factors that you want to consider plus, you want to make sure that you get a certificate of deposit with the highest interest rate and as such, you earn the most off your money.
Here are a few options that you may want to consider when investing your money in a CD.
Use the Ladder Strategy One downside to investing in a CD is the fact that you won't be able to access your money for that fixed duration of time.
So just in case there is an emergency or you need that money fast, you will be given a penalty when you withdraw or alter that money you invest in a CD.
You will still be allowed to take out your money, of course, but as penalty, the bank or credit union might withhold the accrued interest that your money has earned for a certain period of time (usually accrued interest for the last 6 months).
The best way to do this would be to use a ladder strategy.
By laddering your investment, you are not just investing on one CD but rather, taking a couple of CDs that will mature in different period of time like in a year, or two apart.
This way, you can still access your money with a part of it still earning interest.
Fixed or Variable Interest Rate Before you invest your money in a CD, financial institutions give you the option on whether you want a fixed or variable interest rate.
When you go for a fixed variable interest rate then you will be protected from plummeting interest rates and such but at the same time, you won't be able to enjoy the benefits of rising interest rates.
This is really more on your preference and if you think that the fixed interest rate is high enough to satisfy you.
Don't withdraw the interest You will be given the option if you want the accrued interest deposited in your savings or checking account.
The best way to earn more off your money is to not do so and let the interest be added to the principal.
By doing this, you are increasing the amount that interest is being paid of.