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Advantages & Disadvantages of CD Accounts

Certificates of Deposit are one of the safest investments you can make. First, they are the least risk of all higher yield accounts and they are insured by the FDIC just like any other bank account. Moreover, using the CD Ladder strategy you can stagger the maturity dates of your accounts and always have access to at least a portion of your money.

Sounds good, doesn’t it? Well, there are some serious disadvantages of CD investing. The most obvious being that if by chance you need your money sooner than the maturity dates you will incur a substantial penalty for early withdrawal. That should be your utmost concern. Be certain to ask questions such as how much of a penalty is involved, and how serious that will reduce your interest rate in the end.

If you have not already compared rates between banks and credit unions, you are urged to do so before locking your funds into an account for any length of time. Of course, the higher your deposit, the better interest you will generally receive. Remember, however, you never know what tomorrow might bring so be sure to plan for a rainy day by making certain your investments act as an umbrella to shield you when necessary. As with any investment, be sure to read the fine print and practice due diligence before making an investment decision.