Certificates of deposit (CDs) are savings certificates, and they are somewhat similar to normal savings accounts. With both a CD and a normal savings account, a customer can put money into the account, have interest accrue on that money, and then withdraw the money for their own personal use. However, CDs function differently than savings accounts in a couple ways:
- Higher-yield interest - The interest rates offered with CDs tend to be higher than those offered by banks for regular savings accounts. This, of course, is the enticement of investing your money into a certificate of deposit instead of a savings account.
- Period of investment - Unlike many savings accounts, CDs tend to have time periods attached to them in which the customer cannot withdraw any money. This period could be for months or years, depending on the type of CD the customer chose. If the customer does withdraw money during this period, she will be subject to a penalty fee.
Banks are not the only ones who offer certificates of deposit. Brokerages and individual sales people offer CDs with interest rates meant to compete with banks and other financial institutions.
What Should I Be Aware of When Buying a CD?
Like any investment, you should not just obtain a CD without knowing anything about it. There are few questions you should ask the bank or broker who is issuing the certificate of deposit:
- How long is the maturity rate? - Different CDs take different amounts of time to mature. Some certificates of deposit mature in a matter of months, while others can take upwards of 20 years. It is important to find out if the CD matches the ideal length of time you had in mind for investing.
- Who is your broker? - Brokers are not subject to the same federal regulations as banks, although they do owe some duties to their customers. Do some background checking on your broker to make sure they are not trying to scam you.
- Where is your broker putting your money? - Banks will usually insure your CDs up to $100,000. If you already have a CD in one bank, opening another CD in the same bank might put you over the $100,000 mark. Thus, you may want to consider opening the CD with another bank. That is why it is important when dealing with a broker to find out where exactly they are putting your money.
- What are the "call" features on the CD? - Many banks now attach what is referred to as a "call" feature on CDs, meaning that they can choose to terminate the certificate of deposit at any time they wish.
Can a Lawyer Help Me with My Certificates of Deposit?
If you have a question about the tax consequences of your CD or have been the victim of fraud that was perpetrated by your supposed "broker", you may want to consult an attorney. Your lawyer will be able to answer any legal questions you have. If you are having legal troubles such as being defrauded, your attorney can help you decide on what course of action to take to remedy your problem in the best way possible.