CD Term: Short Term & Long Term Certificates of Deposits

One of the most well-known types of certificates of deposit in term of duration term is certificates of deposit of 6 months. But do you know that certificates of deposit are available with maturities between 7 days to 10 years? In the course of the certificates of deposit, your money you’ve invested is difficult to withdrawn, unless you want to get hefty consequences. In an urgent situation or emergency cases that require you take your money from certificates of deposit before maturity, you will get to pay penalty.

This penalty is acknowledged as EWP or Early Withdrawal Penalty. The amount of EWP is different from bank to other bank. So prior to you invest your money in certificates of deposit, please make sure you understand the consequences and you will want to check carefully whether it would probably need the money.

Let take example on what is the best option for you to choose certificates of deposits term. For example you want to put your money to pay for college education tuition fee. If the tuition bill is due in 1 year and 3 months, you will need a certificate that matures exactly at that time. It is best for you to purchase certificates of deposit in small denominations, rather than buying one large amount of CD. The reason for this small denomination is because you never know what the future holds. In case you need to withdraw your certificates of deposits, you can withdraw part of your investment and bear little penalty.

Let see this in simple example. You put your money in a $ 50,000 certificate of deposit with term of 1-year and 8 months. Later in emergency cases you had to take $ 10,000 U.S from it. Some banks imposing penalty fees on all of the $ 50,000 because you have funds in certificates of deposit. It would be wiser if you buy to five $ 10,000 certificates of deposit in the first place. So that in emergency cases you only need to break only one of them, but leave the other four certificates of deposit undamaged. The important point is that the interest rate for the same five smaller certificates of deposit $ 10,000 units is same as a large $ 50,000.