• Certificates of Deposit are issued through a bank or brokerage firm.bank image by Pefkos from Fotolia.com
  
  Certificates of Deposit, known as CDs, provide a way to invest money without all of the risk associated with other investment forms. Banks and other financial institutions such as brokerage firms offer CDs at a higher rate of interest than a simple savings account. The FDIC insures CDs at your local bank for a maximum amount of $250,000.
  
  

Safe Investing

• The basic functions of a CD are not very difficult to understand. To purchase a CD, you begin with the minimum amount of money the financial institution has established to purchase a CD, such as $1,000, $2,500, $5,000 or more. Then you select a fixed period of time the CD will be deposited with the bank or other financial institution, such as six months, one year or five years. Over the term of the deposit, the bank pays interest on the CD investment. At the end of the investment period, you receive your initial investment back plus the interest. At this point, you may choose to simply allow your initial investment plus the interest earned to be recommitted for another fixed period to continue to grow your money over time.
  
  

Careful Investing

• In years past, CDs only earned interest at a fixed rate up to the maturity date. You can now purchase CDs with variable interest rates, longer terms of investment, and features that ease the redemption process should the original owner pass away. Purchasing a CD requires the same careful consideration you would take with any other financial transaction. The best place to start your search for a CD is at your own local bank, but don't stop there. When you find a CD investment program that looks good, take some time to read all of the disclosure forms, and ask as many questions as you need to gain a full understanding of the investment you are going to make.
  
  

Long-Term Investing

• Access to your money is an important issue when you commit yourself to a long-term CD. If you place all of the funds you have into a five year or longer CD, you will be required to pay a penalty for early withdrawal to meet an emergency. Additionally, beware of advertising that promises interest rates far above the rest of the competition. When you invest your hard earned money, the safety and security of your funds is the most important consideration. You need to understand completely when each CD matures, and if the CD will roll over automatically if you forget the maturity date. Finally, if you purchase a CD from a brokerage firm, find out which bank the CD will actually be invested in.