What is certificate of deposit

What is certificate of deposit

There are many people with saving accounts who do not know that they could profit more if they use a certificate of deposit instead. Here is what a certificate of deposit is and why it is advantageous compared to a savings account:
* A certificate of deposit is a contract between a bank and another party that allows the bearer to receive interest and the initial deposit after a specific term.
* Certificates of deposit are low-risk and low-return (still usually higher than saving accounts) investment.
* Certificates of deposit are a very safe form of investment – you will get your money back and the interest too.
* Even if the bank goes bankrupt your deposit is insured (to a certain amount – usually $250k or £100k) and a certificate bearer will still get the money back.
* A certificate of deposit has a term and the interest + the deposited amount is given back after the term is over.
* The disadvantage is that if someone breaks the term and would like to withdraw the money earlier there will usually be a charge for it and the interest would not be paid.
* There are many different types of certificates of deposit – traditional, liquid, bump-up, etc...
* You could benefit from a certificate of deposit if you have some spare money you would like to lend for a long-term duration.
* Certificate of deposit is usually better than a savings account because you earn better interest. On the other end, you can’t simply withdraw your money at any time.

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