Negotiable CDs–Are they worth it?
CDs are good investments for investors who want to make money over time. CDs have many different options and terms for those who are serious about saving money. Negotiable CDs are one of these options. Interested investors must be willing to invest large sums of money to receive negotiable CDs. As with any other investment, investors must evaluate their personal needs to decide if they will benefit from opening negotiable CDs.
How do Negotiable Certificate of Deposit CDs Work?
Negotiable CDS are financial opportunities offered by financial institutions. These opportunities require investors to invest a minimum of $100,000 in CDs. When investors open CDs, the financial institution provides a certificate that guarantees that the investors holding the certificate are paid their deposits and the interest earned.
Negotiable CDs are similar to traditional CDs in that they both have predetermined terms, and money cannot be withdrawn until the predetermined date. Financial institutions generally offer negotiable CDs on a short-term basis, meaning the maturity date is one year or less. Although rare, there are some negotiable CDS with higher interest and longer terms.
Advantages of Negotiable Certificate of Deposit CDs
- They are short-term investments. Short-term investments give investors the opportunity to benefit from interest increases. Long-term investments lock in investors for a fixed amount of time, and they may not benefit from rate increases with traditional CDs. Negotiable CDs are usually for one year or less, and investors still gain a little bit of interest during this time.
- Negotiable CDs may be sold. Since investors cannot withdraw money from negotiable CDs until the maturity date, they may want to sell them instead. There is an enormous market for negotiable CDs. This option offer investors an easy way around the fact that they cannot withdraw the money until the maturity date, and the investors still make a profit. Many investors want to buy negotiable CDs because some of them have low purchase rates.
- They are a low risk. Investors know that once they invest money into CDs that they will gain their original investment and some interest. The interest may be high or low, depending on the interest rate that investors receive. Investors invest their money with the guarantee of some return.
- Some negotiable CDs offer higher rates. These CDs generally have the lowest rates available on the market. Some financial institutions may be able to offer investors higher rates than usual. Financial institutions may be open to negotiating a higher interest rate for investors since they are investing such a large amount of money. Financial institutions are generally more flexible with investors who are willing to entrust their money with their particular financial institution.
Disadvantages of Negotiable Certificate of Deposit CDs
- Investors must deposit large sums of money. Negotiable CDs are not for investors who only have a few hundred or a few thousand dollars to invest. Investors must have a minimum of $100,000 to deposit into CDs. Many investors may not have this amount of money to invest. The investors that can afford to invest this amount of money may not be interested in such a short-term investment option.
- There is not a large amount of money to gain. Many financial institutions offer investors the lowest rates on negotiable CDs. Serious investors may see this as a problem. Although they stand to gain some money, they may not be interested in investing in these CDs because of the small gain. Instead, investors may see investing their money in smaller amounts in multiple CDs with multiple terms and interest rates. Investing in other options may allow investors to gain more money than negotiable CDs do.
- Negotiable CDs do not have the option for early withdrawal. Traditional CDs give investors the option to withdraw their money with various penalties. Investors are locked into the terms with negotiable CDs. Although they are short-term CDs, situations can occur that require investors to withdraw their money. In this particular situation, they are not able to get their money until the maturity date.
Investors who do not have at least $100,000 should not consider investing in negotiable CDs. These types of CDs are only for serious investors with large sums of money. Although investors may not make a substantial amount of interest on their CD, they will not lose any of their original investment. Negotiable CDs are short-term investments, but they are a low risk for the investors. Negotiable CDs are great investments for some investors. Once investors assess their personal situations, it will be easy to decide if negotiable CDs are the right choice.