Liquid CDs: What Are Liquid certificates of deposit?
Certificate of deposits have become one of the safest ways to invest money. Traditional CDs are an alternative to savings accounts. The rate of return is good and they come with low risks to investors. Traditional CDs cannot be cashed in before the maturity dates without incurring cd penalties. For this reason, liquid CDs are becoming more and more popular. Liquid CDs offer investor more access to their investments.
How do Liquid Certificate of Deposit CDs Work?
Liquid CDs are investment opportunities that allow investors to withdraw their cd investment without penalties. Investors agree on the interest rates and terms for the CDs before opening them. Financial institutions require varying grace periods that investors must abide by if they do not want to incur penalties. The deposit amount is generally $10,000 or higher to open these types of CDs. Investors receive higher interest rates on liquid CDs than they do with traditional CDs.
Advantages of Liquid Certificate of Deposit CDs
- Investors can withdraw money without penalties. This is probably one of the most enticing options about liquid CDs. Investors can withdraw the money at varying times, depending on the financial institution. Some allow one withdrawal per month and others allow one withdrawal per 7 days. Investors should verify this information before opening liquid CDs.
- Interest rates are guaranteed for fixed terms. Investors do not have to worry about the issuers adjusting the interest rates according to the current market rates. The interest rate cannot change for any reason.
- These CDs are fully insured. Liquid CDs require higher deposits so this feature is a wonderful option. The FDIC insures the money up to $250,000. Not all financial institutions are FDIC insured. Investors must make sure that the FDIC protects their money before making the investment.
- Liquid CDs have higher interest rates. Investors love liquid CDs because of the high CD interest rates. Higher interest rates mean more money at the end of the terms.
- Investors can withdraw funds if interest rates increase. Interest rates increase on CDs at varying times. With liquid CDs, investors can withdraw their money and invest it in other CDs with the new, higher rates. There are no penalties for withdrawing the money as long as investors withdraw money according to the terms.
Disadvantages of Liquid Certificate of Deposit CD
- Liquid CDs require a minimum opening balance. The original deposit amount is very high. Some investors may not have this amount of money to invest in liquid CDs. Investors are required to deposit a minimum of $10,000. Some financial institutions require higher deposit amounts.
- There are penalties for withdrawals money outside of the terms. Financial institutions allow withdrawal according to their specific terms. Investors that withdraw the money more frequently than the terms stipulate will suffer hefty penalties that cut into their profit.
- The FDIC does not ensure amounts over $250,000. Any amount over the $250,000 amount will not be covered if the bank fails. Investors must make sure that any interest amount over the maximum coverage amount goes into their checking or savings account to prevent a part of their money from receiving FDIC protection. Joint liquid CDs carry double the FDIC insurance amount so that both investors may protect their assets.
- The certificates renew at the end of the terms. Auto-renew can be a problem in certain cases. If the issuer reinvest the money into the same liquid CDS for the same terms and interest rate the investor is in a good situation. If investors do not renew the investment in the same type of CDs, investors can lose money. Issuers may chose to invest the money in lower rate CDs with longer terms, or they may renew the CDs in non-liquid CDs. Issuers have too much control with this option.
- They require a minimum daily balance of $10,000. Investors must make sure that they can keep $10,000 in the account at all times. The daily balance may vary by financial institution. Investors who are not able to maintain this minimum may find themselves in trouble. Issuers have the right to close the account or transfer the money to anther CD account. If investors withdraw money and the amount is lower than the minimum, investors place control of their money in the hands of the issuers.
Liquid CDs are a good choice because of the power that they give investors. It may be necessary to withdraw funds for many different reasons. CDs are safe and reliable investments for investors who want to make money over time. Investors must weigh the pros and cons of owning liquid CDs to determine if this investment option is the best choice.