Certificates of Deposit or a CD is an agreement between you and the bank or a credit union. You agree to keep your money in an account for a specific amount of time. They agree to pay you a higher rate of interest than you could get by depositing your money into a savings account. The agreement states:
How much money you deposited
The interest rate of the CD
The amount of time you must keep your money in the account
Financial instutions offer different kinds of CDs. The interest rate, the amount of money you deposit and the lenght of time of the deposit vary. All CDs are insured by the FDIC. This ensures that your money is safe.
CDs are less liquid than a saving account. They are based on a set time period. You are required to keep your money in the account for that time period. If you take you money out before the time has passed, then you'll have to pay a fee.
Showing posts with label certificate of deposit. Show all posts
Showing posts with label certificate of deposit. Show all posts
Wednesday, November 2, 2011
Wednesday, October 5, 2011
Investing - Growth Rate
The growth rate or how fast your money grows from year to year is really important. In our compounding example, we used a growth rate of 10%. That's how fast your money grew over the time that you had it invested.
Your money will earn more or less depending on where and how you've invested it. A typical bank account will earn about 5% each year. Shop around to find the best rate. Read the Smart Banking post to get some ideas on how. There are other ways for you to invest your money and get a different growth rate.
A certificate of deposit (CD) is an investment option available at a bank or a credit union. It's kind of like a saving account but different. Here's how it works. You deposit a sum with bank, wait a specified period of time, and then withdraw the sum plus interest. It' s kind of like you are loaning the bank your money to use for a specified time period and they are paying you for the right to use your money. The time period is anywhere from three months to six years.
Another way for you to invest your money is by purchasing stock. What is stock? Basically it means that you own a piece of the company or in other words you have a claim on the company's assets and profits. Ownership is determined by the number of shares that a person owns divided by the total number of shares outstanding.
So, if you own 50 of the 1000 share of stock that a company has outstanding then you own 5% of the company. Only a specific type of company, a corporation, can issue stock. While stock often provide a higher growth rate, there is more risk involved with investing your money in them.
In the next post, we'll talk about risk.
Your money will earn more or less depending on where and how you've invested it. A typical bank account will earn about 5% each year. Shop around to find the best rate. Read the Smart Banking post to get some ideas on how. There are other ways for you to invest your money and get a different growth rate.
A certificate of deposit (CD) is an investment option available at a bank or a credit union. It's kind of like a saving account but different. Here's how it works. You deposit a sum with bank, wait a specified period of time, and then withdraw the sum plus interest. It' s kind of like you are loaning the bank your money to use for a specified time period and they are paying you for the right to use your money. The time period is anywhere from three months to six years.
Another way for you to invest your money is by purchasing stock. What is stock? Basically it means that you own a piece of the company or in other words you have a claim on the company's assets and profits. Ownership is determined by the number of shares that a person owns divided by the total number of shares outstanding.
So, if you own 50 of the 1000 share of stock that a company has outstanding then you own 5% of the company. Only a specific type of company, a corporation, can issue stock. While stock often provide a higher growth rate, there is more risk involved with investing your money in them.
In the next post, we'll talk about risk.
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