When you purchase a Certificate of Deposit (CD) you are actually loaning a specific amount of money to some financial institution, whether it be a bank, a credit union, or even a broker, for a specified length of time. This allows them to use your money for such things as consumer loans or security investments. In return, they pay you interest on the amount that you loan them. It is very similar to a savings account with the exception that you can not withdraw your money any time you want. This all sounds cut and dry but there is more to Certificates of deposit than meets the eye.
When you purchase a CD you will be required to invest a minimum amount that will be determined by the issuing company. You can choose from three month, a six-month, a one-year or a five-year term. (more…)