Certificate of Deposit (CD)

By:Ms.J

I hope everyone has been working on their budget analysis. In meantime, I wanted to highlight kicking off one of my finance goals, which is investing. Most if not all of these activities that I ask you partake in to accomplishing your financial goals, I have or am doing as well. For instance, in December I actually created my own budget worksheet and realized I spend excessively on things I do not need, so in January I made my cuts. I was then able to save some money (which I ended up having to use); $500 of that amount went into my savings account. Now this is not a regular savings account, it is actually a CD. A Certificate of Deposit (CD) is a promissory note issued by a bank stating that you are to receive interest on a sum of money once it reaches maturity, however you cannot withdraw that money at any time without incurring a penalty.

I’m sure you’re wondering why do all of that especially when you cannot withdraw the money whenever you want. First, I do not want easy access to my money. Some banks including mines require there is a minimum amount of money in the account or else you will owe them money. This allows me to keep the minimum for the duration of the CD. Secondly, the interest rate is higher in a CD versus a savings account. Finally with this CD, I am able to put additional money throughout the 18 month duration to increase my payout upon maturity.

Calculating the potential payout

Certificate of Deposit

Initial Deposit: 500

Months: 18

Interest Rate: 0.5%

Interest compounded monthly

Using the Certificate of Deposit Calculator, the estimated payout would be $503.75

http://www.bankrate.com/calculators/savings/bank-cd-calculator.aspx

Now I know what you’re thinking, all of that for $3.75. However, first off I have a fluctuating interest rate which means that my interest can go up or down (hopefully up). Also, the more money I put in the higher my payout will be. This along with rolling this payout for another 18 months would eventually create a higher rate of return.

Please note that the more money you invest and higher interest rate you obtain = a higher payout. Research and review before investing

Progress is a slow process but better than nothing.