Getting a Certificate of Deposit
Apr 24th, 2007 by admin
Certificate of deposit or CD, is a time deposit offered to clients by banks, credit unions and thrift institutions. CD is similar to a savings account because the money is insured and risk-free.
However, unlike savings account, CDs are just valid for a specific time. It might be for a period of several months or up to five years. Aside from that, CDs are intended to be kept until it reaches its maturity date and the money will be withrawn together with the applied interest rate.
Certificate of Deposit Penalties
It is not advisable to withraw the money before the CD reaches maturity because the client will be subjected to a certain amount of penalty fee.
When a customer opens for a CD, that person may receive a passbook or a certificate. Or, it might be that the customer will just receive a book entry containing an item for the CD reflected on the client’s bank statements. The client may be given an option to have the interest transferred to a checking or savings account during the process of opening the CD.
Certificate of Deposit Maturity
Once a CD is nearing its maturity, the institution that keeps the CD will issue a notice to the CD purchaser. This notice contains options on what the client wants to do with the matured CD. Options are usually either to withraw the principal along with the accumulated interest or to deposit it into a new CD. If there are instances wherein the institution fails to receive a specific direction for the matured CD, the institution will automatically place the principal along with its interest to a new CD.
If a person is planning to open a CD, it is important that the person will ask for the minimum required principal. Banks require different minimum principal and rates. Usually, institutions offer a higher interest rates for CDs with a bigger principal.