Investing in the stock market can bring big returns — especially if you land on a hot stock before the public learns about it. However, investing in the stock market can also lead to big losses.
Saving your money is a safe bet, but most savings accounts have very low interest rates — if they pay interests at all.
Purchasing a certificate of deposit, or CD, is a safe way to invest your money and to get a guaranteed return.
A certificate of deposit is a savings certificate backed by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). CDs issued by banks are insured by the FDIC, and those issued by savings accounts are insured by the NCUA.
CDs are issued for a fixed term — anywhere from one month to five years — and pay an annual interest rate. Typically, the larger the principal you purchase, the higher the interest rate you can expect to get. While the highest interest CDs may still under-perform the stock market, they are considered a low-risk investment since they pay out a sure return.
In most cases, you cannot withdraw before it has reached its term without incurring hefty penalties. You also have to pay taxes on any dividends you receive when you cash it out.
There are several types of CDs in addition to the traditional one, some of which allow you to withdraw funds early without penalty and some that offer flexibility in interest rates.
The different types include:
Purchasing CDs is a great way to build income while protecting your savings. You will need to invest a sizable amount of money or to keep your money invested for a long time in order to make any significant returns. However, even small gains can help you to work toward your financial goals, such as saving for the down payment on a home or paying off your debts to build your credit.
Use the calculator above to find out just how much you can earn and how quickly you can build the savings you desire to meet your financial goals.