A certificate of deposit, or CD, is a promissory note that a bank issues after an individual makes a deposit into a CD account. The CD has a pre-specified fixed interest rate and a maturity date, usually one month to five years. Individuals are restricted from withdrawing the money in the account on demand. If they take the money out before the CD has matured, they will be subject to a penalty.
A CD is a good way to generate passive income from interest, as long as the depositor does not anticipate needing the money before the CD maturity date. CDs representing deposits under $100,000 are called small CDs and those over $100,000 are called large, or jumbo, CDs. Large CDs and even some small ones, may be negotiable, so individuals should inquire with the offering bank to get more details.
Those looking for a place to put their money for the short term should consider a three-month CD. IGObanking in Lake Success, NY, offers a three-month CD that offers an APY of 1.35 percent with daily interest compounding and a $1,000 minimum deposit. People wanting to invest less money should consider the no minimum three-month CD from Ally Bank in Midvale, UT. It features a 0.74 percent APY with interest compounded daily.
A middle of the road investment term is a two-year CD and newdominionDIRECT.com offers one with a two percent APY, compounded daily, and a $3,000 minimum deposit. That is a rather large minimum for some investors and deposits of $2,500, $1,000, and even $500 can be found. Once again, Ally Bank has a no minimum CD, this time for a two-year period, and this features daily compounding and a 1.80 percent APY.
Those who have lots of cash and are thinking long-term should consider the 3.05 percent APY five year jumbo CD from USAA in San Antonio, Texas. This CD requires a $100,000 minimum deposit and compounds interest monthly. The APY rates fluctuate on a regular basis so an investor should get the current rate prior to investing in a CD.
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