1 Month CDs-Are One Month CDs a Good Investment?
A certificate of deposit or CD offers a wonderful way for customers to earn money on the amount of money that they save. Rates vary for CDs, but they do provide a safe way to earn extra cash. Banks offer customers this wonderful financial opportunity, but how exactly do CDs work? Are there advantages and disadvantages to investing money into CDs? Find out if investing money into CDs offers any benefits at all.
How Does a 1 (One) Month Certificate of Deposit CD Work?
It is first important to understand what CDs actually are before gaining an understanding of how they work. CDs are savings certificates issued by credit unions and banks. These certificates allow customers to receive interest on their invested money. There are maturity dates that apply to CDs that bear a specific interest rate that is fixed, and CDs are FDIC or NCUA insured. Customers can receive CD that range from 1 month to 5 years. Customers are restricted from withdrawing their money from the CDs until the maturity date. In the event a situation occurs and customers must withdraw their money, they will be subject to a penalty for early withdrawal. In banking terms, small CDs are those smaller than $100,000, and large or jumbo CDs are those larger than $100,000.
1-month CDs work very simple and easy. Banks and credit unions generally require a minimum deposit amount to open CDs. Some financial institutions require as much as$500 dollars to open, and others have no minimum to open CDs. Customers must keep the money in the account for one month to receive the maximum return on their money. For example, depositing $1,000 in a CD for one month at 0.15percent interest gains customers $1.50 in interest for a total of $1,001.50. Interest rates vary by financial institution so customers must shop around for the best rates for their money.
Advantages of a 1 (One) Month Certificate of Deposit CD
- Money is protected when invested in CDs. The NCAU and FDIC insure customers’ money. These groups protected the money invested in credit unions and banks.
- CDs are the beginning of a good financial future. When customers invest money into CDs, it proves that they are serious about saving money for their futures. CDs can create thousands of dollars in money to secure financial futures.
- 1-month CDs can roll over to higher interest CDs. Some customers may want to test out the waters to decide if this is the best financial option. Customers have the option to increase the interest rate by switching to a higher yielding CD for a longer length of time. They also have the option to switch their money to another institution if they wish.
- A 1-month investment provides greater control over investments. Customers have the option to move their money from one investment opportunity to another without a long-term obligation. Interest rates change often so it is very easy for customers to benefit from increases with 1-month CDs.
Disadvantages of a 1 (One) Month Certificate of Deposit CD
- 1-month CDs have a low return on the investment. Investing $500 at 0.50 percent interest only returns $2.50 on the amount invested. Customers usually have to invest large sums of money to get a decent rate. The highest interest rates are reserved for long CD terms and large deposit amounts. 1-month CDs offer less than 1.00 percent return.
- There are penalties for early withdrawal. Customers stand to lose their interest if they withdraw the money before the maturity date. Withdrawing the money early defeats the purpose of investing the money and wastes time and money.
- Interest rates may change before the CD matures. If customers receive a 0.25 percent interest rate on their CDs, and rates increase to 0.50 percent interest before the maturity date, customers do not get a chance to benefit from the increase until after their maturity date.
- Many financial institutions require higher deposits to get the best rates. Many require a minimum deposit of $1000, and others may require as much as $10,000. This may not be an option for those with small amounts of money to invest.
CDs are safe investment opportunities that are great for those in the beginning stages of their investments. Investing large amounts of money into CDs is a great way to build a great financial future over time. Rates vary by financial institutions so it is best that customers shop around at banks and credit unions. Online financial institutions are another great place to find deals on 1-month CDs.