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What is a Certified Deposit?

A certified deposit offers higher earning rates than a savings account, but you have to invest your money for selected term length.
By: Baker Jarrell
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When looking at options for saving, you have likely come across something known as a certified deposit. However, this type of account is not as popular so you are probably not familiar with how it works. In this article, we will go over how a certified deposit works and if it is the best option for you.


How does a certified deposit work? 


A certified deposit is a type of savings account that has many benefits to offer. The main advantage is that they have a higher return on investment than a normal savings account. They are also very low risk and do not include any monthly fees. The downside of these benefits is that you have to have a term length with your certified deposit. This means that you will not be able to withdraw your money at any time like you would be able to do with a normal savings account. You can typically enter any desired term length, whether it be a few weeks or even a few decades. If you choose a longer term length, you will usually have a higher interest rate. 


What happens if you withdraw early?


When opening a certified deposit account, you agree to give the financial institution your money for a set period. However, you may run into financial difficulties and need that money earlier than expected. You are still allowed to take your money back, but you will be required to pay fees for withdrawing early. 


Should you open a certified deposit account?


If you have the funds to spare, you should absolutely invest in a certified deposit. You will be able to earn higher returns than just leaving your money in a savings account. However, you need to make sure that you have sufficient funds left over for any emergencies that may arise. Even with a certified deposit, you should still have a savings account that you can use. The main risk with this account is that you will have to pay a penalty if you need the money earlier. If done at the wrong time, you may end up losing money if it has not earned enough interest yet.


How can you find certified deposit options?


Almost all financial institutions, whether it be banks or credit unions, off certified deposits. Because of this, it is important to shop around for different interest rates. The variety in term lengths causes there to be a wide range of interest rates available. First, you need to figure out how long you are comfortable with your money being tied up. The longer the better because you will get a higher interest rate and ultimately earn more money. However, having your money tied up longer increase the chances that you will come across financial distress during that time. Once you determine your desired term length, you should talk to several financial institutions to see who will give you the best rate for that time period.

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