A CD does not mean a compact disc in the world of finance. Instead, it stands for a certificate of deposit. So, if you buy a CD for a certain amount of money through savings and loans or a bank, the bank will pay you a certain amount of interest for a certain amount of time. So, if you buy a CD with a thirty-month term, you might get 3% back, which is equal to $5,000. A bank may not give out CDs for less than $1000, but this isn't always the case. Usually, there are no rules about how to make CDs.
You can choose to get your interest once a year, three times a year, once a month, or when the CD is paid off. Just make sure that your interest will never be added to the amount you paid for the CD in the first place. This is not like a normal savings account at all. Still, you can choose to be paid by check or to have the interest you've earned put into a new account.
It's best not to cash in your CD before the agreed-upon date. If you get your money before you agreed to, you may lose 3 to 6 months of interest payments. This is called a "penalty for early withdrawal."
One of the good things about certificates of deposit (CDs) is that they are usually insured by the government (usually through the FDIC programme). This is because banks issue the certificates. In other words, buying CDs is a safe way to put your money to work.
Another benefit is that you can buy and sell CDs through a brokerage house just like bonds or stocks. If you sell your CD this way, you won't have to pay the fine.
You should also keep in mind that CDs usually have a minimum, which is usually $5000, and that the numbers on them must be round (multiples of 1000).
