CD’s (Certificates of Deposit) are a way for you to make some money while doing nothing. A CD is very much like a savings account where you can earn money by earning interest with money that you set aside to sit.  CD’s generally have a higher APY (Annual Percentage Yield) than normal savings accounts. As well, CD’s are easy to get. All it takes is a few minutes and a quick form to fill out at the bank of your choice. Your bank, in turn, pays you money through interest for letting them borrow your money. They can use your money while it sits in their bank to either make their own investments or to lend out to other customers. When your time comes for the CD to expire, you have the choice to either take it out (with accrued interest for your own benefit) or you can reinvest it again to continue to earn more money.

When you buy a CD, the bank promises to pay you a fixed rate of interest for a given term. In other words, they promise to pay you 5% for one year. After the year is over (at maturity), you decide what to do with your cash. CD’s with longer maturities (time periods) pay higher rates than those with shorter maturities, due to the fact that you’re promising to leave the money with the bank for more time. It is important to remember that the general outcome of the economy influences the CD interest rates, just as each financial institution offers different interest rates for CD’s and you must always shop around to compare rates.  

When your CD matures (maturity is the date your CD is set to expire), you can take your cash and run with it, or you can reinvest it again. When the CD maturity date arrives, you generally have 10 to 15 days to decide what to do with your next step in regards to your money. If you do not inform the bank of what to do with your money, they may automatically reinvest it in another CD. It is important to know the policies of your bank and CD.

If you do choose to reinvest in another CD, the bank can “renew” your old CD with the previous terms. However, not all terms of renewal may remain the same as CD interest rate may have changed since you first bought the CD.

CD’s are the safest form of investment, free of risk.