Once you have determined that a Certificate of Deposit (CD) is the low-risk investment opportunity for you, you may be wondering where to go from there. You have the option of hiring a professional Personal Finance Planner or using a bank representative to assist you. However, if you want more control over your financial future or to learn about the financial process, you can learn to pick a CD yourself.
Here are a few tips to consider before investing in any CD:
1. Determine what the CD interest rate is. Do not let advertised CD interest rates and high yields have you signing a contract before getting the facts. If an interest rate for the CD being offered is significantly higher than market conditions, you may wish to investigate the validity of the claim or the fine print. Some of these advertisements include fine print that says the high return will only be on $1,000 of the entire investment or charge so many fees that the return is minimal.
2. Know the maturity date. You should know, confirm and get the maturity date of the CD in writing. A CD can tie up funds for one, five, 10 and even 20 years. Careful tracking of these funds and their maturity rate is important. If an investment is left alone and not requested to be withdrawn, it can automatically be renewed. Not only will this tie up the money for a greater time period, but the CD will be renewed at the old interest rate. If market rates have increased, you will have missed the opportunity to get a larger return on the investment.
3. Confirm the interest rate and payment process. While the disclosure agreement should contain payment terms, you may wish to go over the process of when and how returns based off accrued interest will be delivered. Depending on personal preference, you may wish to set up an electronic transfer instead of receiving a check.
Before considering a CD purchase, ensure that you are fully aware and understand all the terms of the contract's disclosure agreement. Don't be afraid to ask questions, get answers and mull over them. Taking time to weigh all the options and how they will affect your finances is an integral part of the process.