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How To Use CDs To Your Advantage

Feb 11, 2008
We have all heard about Certificate of Deposit accounts where you lock up your money to the bank for a certain amount of time to make a few extra bucks from interest. You may be wondering if this is a good investment and the answer is it can be.

This probably isn't the answer most of you wanted to hear, but just like any other investment account; you can't just toss you money anywhere and hope it doubles. In order to make CD investments work for you, you have to do your part.

Before you sign up for a CD, there are a few basics you will need to know. First of all, your money is locked up, at least for you use, for the period of the CD. If you are not in a situation to lock up your savings, don't use a CD.

If you can definitely afford to lock up your cash, you might just consider dropping it into your IRA or other type of retirement account. For those financially stable enough to put you money away for long periods of time, this could be your answer.

The second thing you need to understand is the interest rate. Banks will advertise that they are paying 6% annual percentage yield, or APY for a CD for six months. Before you think that you will make six dollars for locking up that hundred dollar bill in your wallet, do the math.

They said they would pay you six percent for six months, which actually means, three percent, due to the fact that you are not locking in your money for a year. The letter A in APY is the most important because is stands for annual, not six months, but a full twelve.

You will also notice that the longer you lock your money up, the better interest rate you will get. Choosing to give your money up for two years could get you a much better interest rate than a six month CD would.

Now, just as you wouldn't buy that new car with out shopping around, the same rule applies when shopping for a CD. Be sure to talk to lots of different banks and even smaller credit unions about the interest rates they are offering. If CD rates are starting to increase, it might be best to wait a month before you invest to see if interest rates are going to rise.

You might also look into CD interest rates on the web. Often times these interest rates are better that any brick and mortar bank could offer you.

Now, it is obvious that any CD account is better than keeping your money in a savings account, as far as interest pays up. But there is more to keep in mind than just these two types of accounts.

There are many other types of accounts that pay just as good, if not better, interest rates than CD accounts do. CD's are good investments, but not necessarily the best. Be sure to look into many different types of investment accounts before you lock you money into a CD.
About the Author
Court is an internet marketing consultant and helps people to learn about internet marketing.
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