Business

How to open a CD account

By Rebecca Trumbo
Info Guru, Catalogs.com

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Do your research before you open a CD account
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Whether you earned it, were given it, or stumbled upon it on the street, chances are if you're online reading this article, you have money.

You could take that money and use it to throw a party, take a trip or go on a shopping spree. You could, instead, invest the money for a few months and earn interest to throw a bigger party, take a bigger trip, or go on a bigger shopping spree. You could also use the interest you'd make and add it to your saving account or a new investment.

Investments range from short-term to long-term, from low to high interest, from little money to major money. If you want to stay fairy simple and in the middle ground, a good investment choice is to open a CD account.

Know how much money you will gain CDs, or certificates of deposits, last for a fixed amount of time and gain interest at a predetermined rate. You can invest $1000 in a six-month CD at a 5.15 percent interest rate and know ahead of time exactly how much money you will gain from the investment. You will earn interest from the bank or financial institution because money put into a CD is simply a loan from you to the institution.

Interest gained from a CD compares to that from a money market account. Unlike a holder of a money market account, which allows the account holder to deposit and withdraw money during the course of the investment, if you are a CD account holder, you must leave the money in the account for the life of the CD. Some places allow you to withdraw money from a CD by paying a penalty, but most places don't allow CDs to be touched once you open a CD account. Since you make money based on accumulated interest, a long-term CD will earn more money than a CD with a short term.

Keep up with inflation Joshua Kennon at About.com http://beginnersinvest.about.com/cs/banking/a/062501a.htm says CDs are good investments for the elderly who "desire only to maintain their capital for the remainder of their life." Money not invested loses value over time as a result of inflation. For example, if you receive two dollars to buy yourself an ice cream treat and keep that money in a drawer, inflation will eventually make ice cream cost more than your two dollars will buy. Now, if you invest those two dollars in a CD that earns interest at an equal or higher rate than the rate of inflation, you'll have a nice treat when your CD matures.

Find the best rates The most important thing to remember when you open a CD account is to do your homework. Several Web sites allow you to search for the best interest rates. If you use an online financial institution, check with the Better Business Bureau http://www.bbb.org to make sure the institution is legitimate. Know how long your CD will take to mature. If you can only live without the $2000 you want to invest until you have to pay taxes in April, a 12-month CD is a bit long, and a three-month CD might be a better fit.

More information For more information and to search for a good rate, go to the following sites or your trusted financial institution.

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