Certificates of Deposit 101“Certificates of Deposit” or “CDs” are short to medium term FDIC FDIC See: Federal Deposit Insurance Corporation FDIC See Federal Deposit Insurance Corporation (FDIC). insured investments that are available at banks and lending institutions Noun 1. lending institution - a financial institution that makes loans financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in . Customers agree to lend money to the bank and get paid the predetermined pre·de·ter·mine v. pre·de·ter·mined, pre·de·ter·min·ing, pre·de·ter·mines v.tr. 1. To determine, decide, or establish in advance: rate of interest. Banks will sometimes charge a penalty if the investor removes any money from the CD before it becomes mature. If you are searching for a few low risk investments that can be converted into cash very easily, you should consider a Certificate of Deposit (CD). Two Main Factors The two main factors of CDs that can affect the interest rates are the length of the time until the CD matures and the interest rate environment. Bank CD rates are set according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the other banks rates making it a very competitive world. There are a few other factors as well that play a big part in the CD rates set by the bank. You may notice that a bank in trying to win short term business by offering higher rates, but they also understand that there are some businesses out there that are shopping around for the best rates they can find on CDs. The Basics of Certificate of Deposit The minimum opening balance of a certificate of deposit is $1,000. It offers various terms and a higher interest rate than a regular savings account Savings Account A deposit account intended for funds that are expected to stay in for the short term. A savings account offers lower returns than the market rates. Notes: . The certificate of deposit sometimes automatically renews during a grace period. The interest earned from the account can be paid in many different ways as well. Your investment is typically FDIC insured. You can obtain various rate comparisons online at many different Web sites. How CDs Work When you purchase a CD you invest a fixed sum of money into the account for a set period of time, either six months, one year, five years, or more if you choose. This is all in exchange for the issuing bank Issuing bank Bank that issues a letter of credit. paying you interest at regular intervals. When you are ready to cash in your CD, you will receive all of the cash that you originally invested plus all of the interest that has incurred over the amount of time before you redeemed your CD. If you should redeem your CD before it has matured, you may have to pay an early withdrawal fee or choose to forfeit To lose to another person or to the state some privilege, right, or property due to the commission of an error, an offense, or a crime, a breach of contract, or a neglect of duty; to subject property to confiscation; or to become liable for the payment of a penalty, as the result of a a percentage of the interest that was earned up until you redeemed your CD. 
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