Certificate Of Deposit Is A Financial Product

Published Date: 02 Nov 2017

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Executive Summary

This document is an effort to detail financial instrument Certificate of Deposit with respect to United States of America.

Certificate of Deposit or CDs are money market instruments of a relatively short to medium duration that pay a fixed rate of interest until the given maturity. In the retail market (financial), opening a CD typically involves placing liquid funds into a savings account held at retail financial institution that offers a fixed interest rate until the set maturity date arrives. Also, funds placed in such a CD cannot usually be withdrawn or can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed.

CD’s because of recent market volatility and advertisements has become popular low-risk investment option in America. Attractive yields have generated interest in CD.

A certificate of deposit is a financial product offered in US by banks, financial institutions, and credit unions. CDs are like savings accounts. They are insured and hence risk free. CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. CDs are different from saving accounts where they has a specific, fixed term (one month to 5 years), and usually with a fixed interest rate. CDs expected to be held until maturity, and the money may be withdrawn together with the accrued interest.

The most popular type of CD remains the traditional certificate of deposit, but with increasing number of financial institutions offering a variety of nontraditional CDs have a constituent of flexibility. If there is a willingness to sacrifice a portion of yield, CD options that might better suit your financial needs can be bought.

CDs of less than $100,000 are called "small CDs", CDs for more than $100,000 are called "large CDs" or "jumbo CDs". Almost all large CDs, as well as some smaller CDs, are negotiable.

Institutional investors, insurance companies and banks and sometimes by wealthy individuals have large deposits and hence can buy negotiable CDs. The interest rates and maturation dates are subject to negotiation between the depositor and the bank because of large amounts of capital involved; this may differ significantly from one CD to another. A wealthy depositor may only want to save his money for a particular duration, at a specific interest rate; banks that would not usually alter their rates or maturity offerings for normal individuals may oblige to negotiate deals when large amounts of capital are involved.

Mechanics of Certificate of Deposits

Traditional

Fixed amount of money deposited for a specific term and receive a fixed predetermined interest rate. Option of cashing out at the end of the term, or rolling over CD for another term is open. Most of the institutions allow you to add more funds to existing term or when rolling over. Stiff penalties are levied for early withdrawal and compel you to lose interest and, sometimes principal too. Federal regulations lay down only the minimum early withdrawal penalty. However, laws do not prevent an institution from sanctioning tougher penalties, but they must be revealed when the account is opened.

Bump-up

These bump-up CD’s help you to take benefits of a rising rate environment. Suppose you buy a 2-year CD at a given rate and 1 year into the term the bank is offering an additional quarter-point on 2-year CDs. A bump-up CD gives you the choice of telling the bank you want to get the higher rate for the remaining term. Institutions who offer this option may typically allow one bump up per term.

The drawback is you may get a lower rate initially than that of a traditional 2-year CD. The longer it takes interest rates to rise up, the higher they'll have to go to make up for the earlier, lower-rate portion of the term. So, make sure you have convincing expectations about the interest rates before buying a bump-up CD.

Zero-coupon

Like zero-coupon bonds, there are also zero-coupon CDs. Like in the bond, you buy the CD at a high discount to par value (CD maturity value). The word "coupon" refers to an interest payment. Zero-coupon means no interest payments.

Callable

The bank can "call" it away your CD after the call-protection expires but before the CD matures. For instance, if you buy a Ten-year CD with one year call protection period, it would be callable after the first year. Here the bank is shifting interest rate risk onto you. If they issue the CD at 5 percent and a year later rates drop and the bank is now paying 4 percent on 10 CDs, the bank can call your CD and reissue it at 4 percent. You'll anyway receive your full principal and interest earned so far. Usually, banks pay investors a premium for taking on the risk that the CD may be called. They usually pay a quarter or half-percent more on a callable CD.

Brokerage

A CD sold through a brokerage is called a brokerage CD. Some banks get broker to act as sales representatives to bring in investors who are willing to purchase CDs from their banks. Brokerage CDs usually pay higher rates than CDs from local bank because banks issuing brokered CDs contend in a national marketplace. These brokered CDs are more liquid than bank CDs because they can be traded like bonds in the secondary market, but there is no guarantee you won't face a loss. The only way to guarantee getting your full principal and interest is to hold the CD until maturity; these CDs often have call options. They are also backed by the FDIC.

High-yield

Banks strive for deposits by offering enhanced than average rates, but the best way to find the highest rates in the nation is Bankrate.com 100 Highest Yields page.

Role of Financial Market in the Economy- Certificate of Deposit

Type of economic system that exists in the United States:

There are different types of economies that exist in the world 1- Command Economy or Central Planning where there is strong Government Control and 2- Free Market Economy that is also called Capitalism. The United States is often regarded as a capitalistic system but it actually is a "Mixed Economy". In the United States there is a high degree of private ownership and individual freedom but a major component of the economy is controlled by the Government. The current estimates indicate that the Federal Government is spending accounts for up to 1/3rd of the economy. Prior to the Great Depression of the 1930’s, United States was mainly a free market, capitalist system and the role of the Government was barely minimal during that period. Post the Great Depression of the 1930’s there was massive unemployment and widespread poverty made some to believe that capitalism, as an economic system has failed. Economist John Maynard Keynes revolutionized the economic thought process and a new system was proposed "managed capitalism."  Post the Keynesian revolution (it was reworking of the economic theory where the concern was on the employment levels in the overall economy) the US government started taking an active role in regulating the economy.  The nature of the government underwent a change and resulted in the assumption of government’s responsibilities.  F.D Roosevelt created an economic bill of rights  that specified certain rights that were to be afforded to all sections.  These included the right to Housing, education and affordable health care.  The government assumed the responsibility to feed, house and educate its citizens.

United States has the World’s largest National economy and the World’s second largest Overall economy. The US is the largest trading and Manufacturing nation, World’s wealthiest nation with per capita GDP of $48,450. The US has the largest GDP at Purchasing Power Parity in the World. Though US economy is a Mixed Economy it has maintained a high capital investment, moderate unemployment rate and stable GDP rate. Around 60% of the Currency reserves across the world have invested in the US Dollar. Around the 1970’s a lot of emerging economies and are closing the economic gap with the United States, this was mainly as there was shift in Manufacturing industry of manufacturing goods where it was made at a significantly lower cost post shipping cost to make higher profits.

Certificate of Deposit:

Under the Monetary Policy of the Federal Reserve System there are four types of Deposit A/C’s.

Savings Account - Accounts that are maintained by Retail financial institutions like Banks , Credit Unions, that pay interest but cannot be used directly as money as a medium of exchange for e.g. by writing a check. For these accounts customers normally set aside a portion of their liquid assets while earning a monetary return in the form interest income. For the bank, money in the savings account may not be callable (e.g. Bonds, Fixed deposits) immediately and in some jurisdictions and does not incur a reserve requirement, releasing cash from the bank's vault to be lent out with interest to the customers.

Checking Account- Under this type of account a deposit account held at a bank, credit Union or any other financial institution, for the purpose of providing quick and frequent access to funds on demand, through a variety of different modes/ channels of transactions. Transactional accounts are neither for the purpose of earning interest nor for the purpose of savings. It is only used for the convenience of the business or personal client; hence do they tend not to bear any monitory benefit or interest to the depositors. There is no cap on the number of deposit or withdraw transactions subject to availability of funds in the account.

Money Market Account (MMA):  Money market Account/deposit account (MMDA) is a financial account that pays interest on current interest rates available in the money markets. Money market accounts have relatively high rate of interest and require a higher minimum balance (anywhere from $1,000 to $10,000 to $25,000) to avoid monthly fees or earn interest. The investment strategy is similar to and meant to compete with another market fund amoney offered by another brokerage. These two types of account are otherwise unrelated.

Certificate of Deposit - A Certificate of Deposit (CD) is a promissory note issued by a bank. Certificate of Deposit’s are generally issued by commercial banks and are insured by the Federal Deposit Insurance Corporation (FDIC). A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. The term of a CD generally ranges from one month to five years.

A Sample Certificate of Deposit template

When the right CD is chosen it can yield a better ROI (Return on Investment) in comparison to a Savings Account and also pays interest. Certificate of Deposit carries the reputation as a secure place to grow and save money as you will never have money lower than the deposit amount. During times of inflation there might be scenarios when we can end up with less buying power when we compare the money post the maturity end period. In an ideal scenario when the interest rate on Certificate of Deposit is higher during the complete term than the rate of inflation. But when the economy is volatile the inflation rate changes more quickly that the rate banks pays on CD. During the period when the inflation is dropping, it is actually beneficial for the CD as we tend to get a higher rate when inflation drops. During the rising inflation, though the CD is stuck at lower rate as the inflation actually starts eroding the buying power.

For e.g. in Mar 2011 US has an inflation rate of 2.68 %. As per the national survey conducted by Bankrate.com the rate of inflation actually erodes buying power, as per national survey of financial institutions a 1 year CD had yield of 1.3%. For a $1,00,000 in a CD would result in total of value $1,01,300 but based on the inflation prevailing at that time you would require $1,02,680 to buy goods. Historically CD rates have exceeded inflation but not during extremely high inflation rates or immediately post recession since the interest rate would have gone down significantly.

1 Month Trend on National CD Rates

CD Term

APY (as of 5/31/12)

APY (as of 6/29/12)

APY Change

6 Months

0.37%

0.38%

0.01%

12 Months

0.53%

0.53%

0%

24 Months

0.71%

0.71%

0%

36 Months

0.92%

0.92%

0%

48 Months

1.11%

1.10%

-0.01%

60 Months

1.36%

1.33%

-0.03%

APY- Annual Percentage Yield

Financial advisors say that the reason behind the latest economic crisis is that Americans have actually lost the art or forgot how to save. This lead to people falling into debt mainly because they spent more than what their finances allowed.

The Federal Reserve (America’s Central Bank) in the US is trying all possible ways of not only preventing inflation but even the global depression. During the crisis that banks had the Federal Reserve had made many innovative programs that actually saw trillions of US Dollars of liquidity being pumped into the economy to keep the banks alive/Solvent. Many in the financial world where actually worried that this would create inflation immediately post the recovery stage of Global Economy. The Federal Reserve developed an exit plan to close down the innovative program by creating Certificate of Deposits to allow excess credit to Banks.

Regulatory Authority:

FDIC (Federal Deposit Insurance Corporation) is an independent organization of the United States established in the year 1933. Its role is to protect the funds that are deposited in to the banks and savings associations since its inception no depositor has lost any FDIC-insured funds. The FDIC insures against almost all the deposit accounts including those of money market deposit accounts, certificates of deposit (CDs), savings accounts and checking accounts.

The FDIC aim is to protect depositor’s funds in the unlikely event of the failure of their bank or savings institution. FDIC provides deposit insurance, which guarantees the safety of deposits in member banks, up to $250,000 per depositor per bank as of January 2012.

The FDIC also supervises and examines certain financial institutions for soundness and safety, performs consumer-protection functions, and manages failed banks. It is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.

Money market accounts and CD’s are equally insured by the Federal Deposit Insurance Corporation. The FDIC provides an extra layer of security that ensures that deposits of up to $250,000 per customer are insured by the government. You can be rest assured that your deposit is safe if it is guaranteed and insured by the FDIC. There is no difference between the FDIC insurance for CD’s and a money market account at an FDIC insured bank.

Historical Interest Rates for Certificates of Deposit

The first 150 years of US history saw the banking industry evolve, move from good times to hard times as it experienced change and hard economic times. The severe economic problems as a result of the Great Depression drove many banks to shut their doors and moved them out of business. The federal government has to step in and passed a series of laws to protect the investor’s funds during the 1930s, ensuring stability, financial backup, financial guidelines to banks and insurance to deposits made by customers. Government backing for customer deposits led to bank-issue insured certificates of deposit (CDs).

CD interest rates track the interest rates and the prime rate offered on the Treasury securities. CDs were initially marketed during the 1960s. Interest rates on Treasury instruments and securities were low for almost three decades, from the 1930s till the 1960s. Rates began crawling up as a result of inflation and recession that began in the mid-1960s. The average rate of 1-year Treasuries securities rose above 3 % from 1962 forward. CD’s interest rates also followed a similar path.

CD Rates from the 1960s to 1980s

During 1960’s average rate of 3 month CDs was around 4% and increased to 5.52 % in 1967. Interest rates continued rising and by December 1969 the average rate on 3-month CDs was 7.76%. Interest rates finally began falling down in 1971, only to rise again till October 1974 to 10.26 %. Interest rates continued to increase steadily reaching a high of 16.48 % in September 1981. Those were years of high inflation and recession following the Vietnam War. It took years together before the government was able to stabilize the economy. Rates then declined just to be around 6% but remained above 6 % throughout the 1980s.

During the 1990s

By the end of the 1980s inflation eased out, and the economy improved as a result of rapid expansion of globalization of American firms. 3-month CD rates declined to below 5 % by 1991. But again rates began to rise again in late 1994 and remained above 5% throughout most of the 1990s.

In the 2000s

During the early 2000’s the whole world saw the stock market plunge, the attack in the world trade centre and the worst economic crisis since the Great Depression. Interest rates initially dipped below 5% in March 2001 and quickly continued to drop. By December 2001 rates were below 2 % and remained in and around the same level for about 3 years. Rates began rising again by the December 2004 and exceeded 5 % by April 2006. Post 2006 recession took hold of the country and by the beginning of 2008 rates fell down to 3.84 % and continued tumbling downwards. Rates hit a low of 0.19 % in February 2010 and stayed below 0.5 % through 2010.

Discussion of players, their profiles and objectives in the Market

Who issues certificates of deposits in US?

Certificates of Deposit are issued by retail financial institutions such as banks, credit unions and savings loan corporations and that are usually regulated within the country in which they operate. In the United States, funds deposited in Certificates of Deposit are protected up to a certain amount by the Federal Deposit Insurance Corporation or FDIC when the Certificate of Deposit is placed with a financial institution that is also an FDIC member.

The list of companies which offers CD’s in the US markets are listed below.

Name

Duration

Rate

Description of CD

Ally Bank 1 Year CD Rates

1 year

1.04%

The interest rate for the cd product 'high yield cd' is for a 1 Year Term which requires no minim - USD - October, 2012

More Info

American Express Bank 1 Year CD Rates

1 year

0.55%

The interest rate for this 12 month CD account is for a 1 year term requiring as much as $1 minim - USD - October, 2012

More Info

Bank of America CD Rates

1 year

0.20%

1 Year - 17 Month / 12 Month Rate is for the Standard CD/IRA Product and was ca - USD - October, 2012

More Info

1 year

0.20%

This IRA interest rate is for a term between 1 year to 17 months and is under the 'Standard CD/IR - USD - October, 2012

More Info

10 year

0.75%

This applies for 10 Years and is for the Standard CD/IRA Product which was calculated - USD - October, 2012

More Info

2 year

0.35%

2 Year - 35 Month / 2 Year Rate is for the Standard CD/IRA Product and was calculated - USD - October, 2012

More Info

3 month

0.15%

90 - 179 Days / 3 Month Rate is for the Standard CD/IRA Product and was calculated for - USD - October, 2012

More Info

5 year

0.75%

This applies for the range from 5 Year to 119 months and is for the Standard CD/IRA Product which - USD - October, 2012

More Info

6 month

0.15%

180 - 364 Days / 6 Month Rate is for the Standard CD/IRA Product and was calculated for - USD - October, 2012

More Info

Bank of China USA CD Rates

1 year

0.51%

The following interest rate APY is for a 'Certificate of Deposit' account type, a 1 year term and - USD - October, 2012

More Info

1 year

0.71%

The minimum requirement/balance for the APY interest rate for this CNY currency 1 year CD term is - CNY - Oct, 2012

More Info

BBVA Compass CD Rates

1 year

0.50%

This interest rate applies to the State of California - 'Southern California', please refer to we - USD - October, 2012

More Info

Capital One CD Rates

6 month

0.40%

Interest rates for capital one certificate of deposit is for a 6 month / 180 day period, it also - USD - October, 2012

More Info

CHASE CD Rates CD Rates

1 year

0.25%

Rate is for a deposit for 12 months with a $1,000 Minimum Opening Deposit from 90210 postcode - USD - October, 2012

More Info

2 year

0.40%

Rate is for a deposit for 2 years with a $1,000 Minimum Opening Deposit - USD - October, 2012

More Info

6 month

0.20%

Rate is for a deposit for 6 months with a $1,000 Minimum Opening Deposit - USD - October, 2012

More Info

Citibank CD Rates

1 year

0.25%

12 month Rate is applicable for a state of California. - USD - October, 2012

More Info

2 year

0.30%

2 Year Interest Rate was calculated for the state of California, other states may vary. - USD - October, 2012

More Info

3 month

0.15%

Rate was calculated for the state of California, other states may vary. - USD - October, 2012

More Info

6 month

0.15%

6 Month Interest Rate was calculated for the state of California, other states may vary. - USD - October, 2012

More Info

Citizens BankCD Rates

2 year

0.25%

The interest rate is for 24 months / 2 years and requires a minimum of a $1000. This rate w - USD - October, 2012

More Info

Discover Bank CD Rates

1 year

1.00%

The current interest for this CD product is for a 12 month term with a minimum of $2,500 to open - USD - October, 2012

More Info

Fidelity CD Rates

1 year

0.55%

The interest rate yield for this fixed income investment is for a 1 year period. Selected from Fi - USD - October, 2012

More Info

Fifth Third Bank CD Rates

1 year

0.25%

The current interest rate applies to the 'Standard CD' product and is for a 12 to 24 month CD ter - USD - October, 2012

More Info

Harris Bank CD Rates

1 year

0.35%

The interest rate for this Harris certificate of deposit account is for a 1 year / 12 month period - USD - October, 2012

More Info

HSBC USACD Rates

1 year

0.20%

This interest rate is for '1 Year plus 1 day' / 12 month + 1 day with minimum balance to open the - USD - October, 2012

More Info

ING Direct USA CD Rates

1 year

0.50%

The Interest rate for this ING Direct 'Orange CD' Account is for a 12 month / 1 year period - USD - October, 2012

More Info

Key Bank 1 Year CD Rates

1 year

0.10%

The interest rate for this cd account was determined using a postcode for New York and is for the - USD - October, 2012

More Info

MetLife Bank CD Rates

1 year

1.05%

Interest Rate is for a deposit $100,000+ for a 12 month period - USD - October, 2012

More Info

2 year

1.17%

Interest Rate is for deposit amounts of over $100,000 - USD - October, 2012

More Info

3 month

0.50%

Interest Rate is for deposit amounts of over $100,000 - USD - October, 2012

More Info

6 month

0.70%

Interest Rate is for deposit amounts of over $100,000 - USD - October, 2012

More Info

Navy Federal Credit Union 1 Year CD Rates

1 year

1.00%

The interest rate indicated is for the 'Short-Term Certificate' product and is for a 1 y - USD - October, 2012

More Info

PNC CD Rates

1 year

0.20%

Rate is for 12 months with a minimum balance of a $1000 at a 'Fixed Rate CD Only' for the state o - USD - October, 2012

More Info

2 year

0.35%

Rate is for 2 years with a minimum balance of a $1000 at a 'Fixed Rate CD Only' calculated in the - USD - October, 2012

More Info

3 month

0.07%

Rate is for 3 months with a minimum balance of a $1000 at a 'Fixed Rate CD Only' calculated in the - USD - October, 2012

More Info

6 month

0.10%

Rate is for 6 months with a minimum balance of a $1000 at a 'Fixed Rate CD Only' calculated in the - USD - October, 2012

More Info

Rabobank America 1 Year CD Rates

1 year

0.30%

The interest rates for this CD requires a minimum of $2,500 and is for a time horizon of 1 year ( - USD - October, 2012

More Info

Regions Bank 1 Year CD Rates

1 year

0.10%

The interest rate is applicable for Houston, Texas and is for a 12 month/1 year time frame. - USD - October, 2012

More Info

Sovereign Bank 1 Year CD Rates

1 year

0.20%

This interest is determined from the 'rising rate cd' product and is for a 12 month term, calculate - USD - October, 2012

More Info

TD Bank 6 Month CD Rates

6 month

0.20%

Interest rate for Certificate of Deposit product requires a $250 minimum deposit for the 'no catc - USD - October, 2012

More Info

Union Bank 1 Year CD Rates

1 year

0.30%

The interest rate provided below was based on the CD product for a range between 12 to 17 months - USD - October, 2012

More Info

US Bank 1 Year CD Rates

1 year

0.10%

This interest rate applies the 'Standard CD' product and is for a 12 month / 1 year term and was - USD - October, 2012

More Info

USAA 1 Year CD Rates

1 year

0.86%

This cd product is for a 12 month / 1 year period for a standard cd balance of $1,000 — $94, - USD - October, 2012

More Info

Wells Fargo CD Rates

1 year

0.05%

- Rate is for 'Standard CD Rates' for 1 year and applies for the state of California, it also req - USD - October, 2012

More Info

3 month

0.05%

3 Month Interest Rate was based on the standard cd rates product and calculated for the state of - USD - October, 2012

More Info

6 month

0.05%

6 Month Interest Rate was based on the standard cd rates product and calculated for the state of - USD - October, 2012

More Info

Extent to liquidity:

Access to Funds

With a money market account held at the bank, money can be withdrawn or deposited whenever you would like. Although there are some restrictions about maximum number of withdrawals per quarter for a money market account, but the bank in general cannot prevent you from withdrawing the deposited money. When it comes to CD’s, you are agreeing to deposit the money and keep it invested for a certain time period. Generally you cannot access the money invested in a CD’s without significant fees and penalties assessed by the financial institution.

Though some CD’s offer depositors the chance to withdraw money from the CD without inviting any penalty, although you may have to maintain some minimum balance in the account to get this privilege. The interest rate offered on a liquid CD should be higher than the bank's money market rate, but usually will be lower than a traditional CD of the same term.

Major concern when purchasing a liquid CD is how soon one will be able to make a withdrawal after opening the account. Federal law recommends that the money should stay in the account at least for 7 days before it can be withdrawn without paying any penalty, but banks can set first penalty withdrawal for any period beyond that.

Another consideration should be the number of withdrawals allowed. You'll have to weigh the suitability of liquidity against whatever return you're forgoing when compared to similar term CDs without the liquidity feature.

Length of Investment

You may choose to invest in a money market account for any time period say for a few months or many years. With a CD’s, you will have to choose an investment term when you deposit the money. CD’s term can be from as small as 30 days to as much as five years. If you consider investing in a long-term certificate of deposit, it is important to consider the risks involved and also the extent of liquidity available as the money will be tied up in the CD for that amount of time. Early withdrawal will impose heavy penalties of three to six months of interest.

Interest Rates

Money market accounts typically have variable interest rates. These rates tend to fluctuate over time and can be adjusted by the financial institution on quarterly or a monthly basis. Rates can vary widely according to market conditions and you are not guaranteed any maximum or minimum interest rate for the account. With a CD, interest rate is determined at the time the CD is opened. This rate does not change for the life time of the certificate of deposit.

Fees and Penalties

Usually money market accounts require a minimum daily or average monthly balance to avoid maintenance or minimum balance fees. In addition, the banks usually do not charge any fees for any withdrawals during the period which exceeds the maximum number of withdrawals. However, one can withdraw all of the money at any time without penalty or loss of interest. With a certificate of deposit, an early withdrawal will lead to interest loss. This can vary from bank to bank but commonly, banks charge 3~6 months of accrued interest as penalty. Some may charge even more in addition to other fees.

Innovative Products

Market linked CD’s

Market linked CSD’s are also known as Equity linked CD’s. Over the past 20 years, the marketplace for investments has grown significantly as investors ranging from young couples to retirees have increasingly looked to these investments to help address wealth management objectives such as pursuing growth opportunities, generating regular income, planning for their retirement and protecting principal. Structured investments can take different forms – registered notes and CDs to name a few. A common method in which structured investments are issued is in the form of Market-Linked Certificates of Deposit (CDs).

Market-Linked CDs offer investors the potential to earn enhanced returns compared to those available with traditional deposit products.

Some of the companies which offer the market linked CD’s in US are

HSBC

Wells Fargo

Met life

Share Certificate

One of the innovations with CD’s are Share Certificate CD’s–it's secure, it's reliable, and it's absolutely guaranteed to grow. Share Certificates of Deposits (also known as CDs) usually have even higher yields than a regular savings account.

Advantages & Disadvantages of CD Accounts

CD’s are one of the safest investments you can make. Firstly, they carry the least risk of all higher yield accounts and they are insured by FDIC just like any other bank account. Also, using the CD Laddering strategy you can stagger the maturity dates of your accounts and always have access to at least a portion of your money.

Those were the advantages well; there are some serious disadvantages of investing in CD’s. The most obvious thing that if by chance you need liquidity on your money sooner than the maturity dates you will incur a substantial penalty for withdrawing early. That should be your first concern. Make sure you ask questions such as how much is the penalty involved, and how seriously that will reduce your interest rate in the end.

If you have not compared rates between credit unions and banks, it would be really helpful for you to do so before locking your funds into CD’s for any length of time. But again, the higher your deposit, the higher interest you will receive. However, you never know what tomorrow might bring to you so be sure to plan for a rainy day by making certain investments act as an umbrella to shield you when required. As with any investment, make sure to read the fine print and practice utmost care before making an investment decision.

Recent Trends in the Market

Americans once regarded Certificate of Deposit as one of the best investment tool. CD’s are also known as Time deposit account. The biggest benefit of CD’s is usually the high yield and low risk on investment. In the current market scenario CD’s do not offer the best yield or return in comparison to the other instruments around. There are few institutions (Banks or Credit unions) in the market that still offer a better than average rate in comparison to the Big Banks that offer 0.05%.

Due to the volatility in the market it is all about the confidence that businesses and consumers need to have about the US economy before they see a significant increase in the CD rate. The confidence effort game is being built by the Federal Reserve Board but not too confidently. The Federal Reserve board meets and discuss on action items that needs to be taken to grease the US economy. Economists feel that the fragile economic recovery is part of the increasing rates.

Trend in the Market

Scenario

Short Term

Long Term

Buyers are becoming extremely cautious in purchasing US Treasuries since there was recent talk that UK might loose their AAA rating and if it will impact US and will US loose the place of a risk free trading country.

No Change

Upward Trend

Since FDIC provides coverage to all CD's the end customer can be rest assured on the guarantee of his money. Off late US Dollar has see a fall and that is something that is a concern and will impact a majority of items and the commodity prices will again move forward. Consumers who can take more risk are looking at Non hedged short -intermediate-term international bond funds. It might be appealing to few since the potential of gaining from a weak US Dollar and high foreign rates.

Unchanged

Upward Trend

On CD's, there is a good value that is being put in investment -grade corporate bonds. The expected yield is between 4-6% on Maturity of most of the instruments ranges from 6 months to 6 years. Consumers need to exercise caution and should diversify their investment portfolio based on industry like financial, healthcare etc rather than placing all their investment under 1 portfolio.

Unchanged

Unchanged

Based on the trends in the market there is very little change for having higher return for short term investments. The yield curve is steeper and it indicates that the rates will move higher. There is still attractive yields and opportunity if we don’t mind opening money markets or CD's.

Unchanged

Unchanged

For all major banks since the net interest margins are lower it put more pressure on all deposit instruments and their yield.

Down

Down

When looking for a low or risk free investment for their hard-earned cash, many Americans are currently turning to certificates of deposit (CDs). With recent market volatility there has been lot of advertisement for Certificate of Deposits providing some attractive yields options this generating considerable interest in CDs.

The SEC’s Office of Investor Education and Advocacy has even issued an Alert to all potential investors about the about the pros and cons of some high-yield CDs. Though all CDs has federal deposit insurance, some are more complex and may carry more additional risk, especially with respect to early refund of money or having a an attractive locking interest rate.

Conclusion

Safety is key point of the traditional certificate of deposits sold by a banks or credit union. Traditional CDs characteristically returns greater than the rates offered by other insured investments, such as savings and checking. CDs are also available in a variety of subscriptions, a range of features and investment schemes. Decision of the depositor depends on the type of institution offering the certificate, the terms of the deposit contract, the risk and service of the financial institution offering the deposit and also the city where the offering institute located.

A minimum amount of deposit is required for deposits paying higher interest rates. A penalty fee keeps investors away from withdrawing money from the account before the agreed-upon date. Apart from the basic model CDs also come with may features like brokered CDs, bump-up CDs, callable CDs. CDs can be an investment opportunity for long-term deposits, short-term deposits, conservative growth, , income generation, hedging, speculation and more.