What is a CD?

You may have heard people talking about CDs around the credit union, or seen CD Rates posted at REGIONAL. But what exactly is a CD, and what can one do for you?

“CD” is short for “Certificate of Deposit.” A Certificate of Deposit is similar to a savings account, with a few important differences. Like a savings account, a CD draws interest. However, a CD usually carries a higher interest rate, so you make more money on your deposit. Also, with a savings account, you can withdraw money at any time. A CD is locked in for a certain period, usually three or six months, or one to five years. There are penalties for early withdrawal of CD funds (this is the tradeoff for a higher interest rate).

Opening a CD is similar to opening a savings account, but there is usually a minimum opening deposit of $1000 at most financial institutions. Then you wait while your money draws interest. When the CD reaches the end of the term, it has reached maturity. At that time, you can roll the funds over into a new CD, transfer them to a different account, or withdraw them. If you don’t take any action, most financial institutions will then automatically roll the funds over into another CD and your funds will be locked up again. It’s best to be alert!

The advantages of a Certificate of Deposit are a higher interest rate than most savings accounts, low risk, and security. A CD at a credit union is federally insured by the NCUA (National Credit Union Association). Sure, you can invest $1000 in the stock market and have $2000 six months later, but you can also invest $1000 in the stock market and have nothing six days later. With a CD, you’re guaranteed not to lose your initial investment.

The primary disadvantage of a CD is that your money is locked up for a certain period of time. For young people, the $1000 minimum to open most CDs can be a bit hefty as well.

To get around these disadvantages, REGIONAL now offers the Head Start CD to anyone 17 or younger. With the Head Start, you can open a CD with just $25, and your money is only held for 6 months. Plus, you get a great interest rate and you can make deposits to the Head Start CD in $25 increments at any time. So you can choose to invest some of your funds, and keep the rest available to you. Stop by REGIONAL for more details!