CDs pay higher yields than liquid savings accounts, but to earn that, you need to let someone else hold your money for a specific period of time.
Once you've grown your liquid savings account to create your emergency fund, you should consider a longer-term investment that has a higher yield. One of the most common fixed-income investments is a CD. In this chapter, we explain the different types of CDs and the various strategies you can use to earn the most income from them. We also spell out the penalties you might incur if you cash in the CD before its maturity date.
What you can expect to learn from this chapter:
- Lock up your money; get higher interest
The basics of certificates of deposit are explained. - Types of CDs
A look at the advantages and disadvantages of the most common CDs: traditional, bump-up, liquid, zero-coupon, callable, brokerage and high-yield. - Certificate of deposit investing strategies
Savvy investors keep a portion of their savings in fixed-income instruments like CDs. These strategies can help you make the most of your CD investments. - Early withdrawal penalties
A CD has a defined date of maturity, and cashing it in before that time will incur penalties. See under what circumstances those penalties are not assessed.