Opening a CD Account: How to Open a Certificate of Deposit Account: Introduction
CDs are long-term or short-term investments that earn investors interest on their original principle. Investors put their money in financial institutions and allow it to grow. When investors deposit their money in banks and credit unions, issuers use the money over the terms of the investment. In exchange for using investors’ money, issuers offer great rates and terms for investors.
This enticing offer is the reason that many investors choose to invest their money in CDs. Investors who invest money in CDs do so because it is a safe, reliable way to earn money for upcoming events. It is very easy to open CD accounts. Investors have several things to consider before opening CD accounts.
Lists of Things to Do Before Opening a Certificate of Deposit CD Account
- Decide on a deposit amount. The deposit amount is the foundation of the accounts. Interest rates vary greatly by the amount of the original deposit. Investors must know this information because most CDs do not allow investors to add money over the life of the CDs. A few options do, but there are specific stipulations that the investors must consider. Investors must make sure that the amount of money that they deposit can remain until maturity. If investors withdraw money before maturity on CD accounts that do not have a no-penalty option, investors may have to pay hefty fees that may cost them some of their principle investment.
- Search for the best rates on the market. Searching for rates can make a huge difference in what investors make on their investments. Investors are not limited to finding great rates from their personal financial institutions. They can find competitive rates on the Internet and outside banks. Investors have the right to find CD rates wherever they choose. Online rates may be a little higher than the rates at local banks. Online banks are trying to compete with other banks for investors’ business. Credit unions may also offer competitive rates because they have lower overhead costs.
- Decide how to receive interest payments. This decision can make a big difference in how much investors make from their CD accounts. Investors can choose to receive their interest monthly, annually, or at maturity. Investors must decide how they plan to spend the money before they can make this decision. Investors who need their money soon may be interested in receiving their interest monthly. Those who have long-term plans for their money may want to receive their interest at maturity or annually. The longer the principle and interest remain in the CD accounts, the more money investors make.
- Narrow down the interest rates, terms, and conditions. The next step in the process is taking the researched information on rates, terms, and conditions and deciding which investment option is the best choice for their money. Some rates and terms may seem great, but they have special conditions that investors do not like. Others may have great conditions and term, but they have rates that investors do not like. Investors must also take this time to read the fine print so that they are sure the information on paper is the same information that they receive from the bank employees.
- Decide how soon the money is needed. This factor can ultimately decide how much money investors receive at maturity. Investors should pick short-term CDs if they plan to use the money soon. Long-term CDs are the right choice if investors plan to use the money later. If investors cannot decide on whether to invest their money in long-term or short-term CDs, they may want to consider laddering their investment. This option allows investors to choose more than one term and more than one rate. The CDs are laddered so that the investors can attain money at various times instead of waiting for one maturity date. Larger investments are more beneficial with this option.
Things You Will Need When Opening a Certificate of Deposit CD Account
Investors must complete their CD application, and they need to have their personal information to open CD accounts. The personal information that they need to open CDs accounts may include name, social security number, address, telephone number. They may also ask for information such as driver’s license and bank account information for those who have monthly amounts drafter for CDs. The personal information varies so investors should contact the financial institution in which they purchase their CDs.
Investors must make sure that they know what they are getting into when they open CD accounts. Many questions must be answered before opening CD accounts.