To grow and safeguard your money, it is important to build a solid financial foundation. There are some better options available than others and a certificate of deposit is one of the worthwhile choices to grow your savings. Do you know what a certificate of deposit is and what are the merits and demerits of COD? If not, there is no problem. In this blog, you will walk through the discussion regarding the certificate of deposit and its pros and cons.
Let’s explore the opportunity so that you can furnish your financial plans with more knowledge,
Certificate Of Deposit
The certificate of deposit represents an agreement between the financial institution and the party. It is also known as a CD. After placing the funds in a certificate of deposit, you need to wait for a specific period to get rewards in return. You get the APY at the end of the period that is abbreviated as annual percentage yield. If you are wondering how it works then the next point is for you.
When you place your money in a CD then you need to leave it untouched for the agreed duration of the term. If you plan to take your amount back in the duration then you will be liable to pay a penalty for the decision. At the end of the term duration, you earn the earned funds as a reward.
Pros And Cons Of A Certificate Of Deposit
Every financial product has its advantages and disadvantages. Here is the certificate of deposit pros and cons that you should be aware of:
Pros Of A Certificate Of Deposit
Let’s begin with the merits, CD allows one to have a sense of protection. When someone places their funds into the insured CD, that person would get access at the end of the term. Additionally, it provides the set rate of return on the investment at the end of the maturity.
The estimation that occurs along with investing funds in a certificate of deposit cannot be overlooked. You can utilize the stability offered by this kind of investment to have stable personal finances.
You can have CDs in all terms and sizes according to the preferences of the person. Such as, you can use it to save the amount for the future purchase by tucking the funds away for safekeeping; you would not have access to those funds throughout the duration. But with the relevant planning, you could have access to the money exactly when you will be requiring it.
Cons Of A Certificate Of Deposit
Of course, everything has its negative side also with the positive ones. Certificate of deposit is considered among liquid assets as you can access them easily but there is a catch. In most cases, you need to pay a penalty to get access to your funds, which is considered a huge problem for the investors.
CD is considered a low-risk investment so it comes with a low rate of return as compared to the other kind of financial investments. Well, this is a good financial tool but not for everyone so choose only if it suits your financial goals.
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