*First National Community Bank’s blog does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors for advice.

A Certificate of Deposit, or CD is a type of savings account with a fixed interest rate that’s usually higher than a regular savings account. It also has a fixed term length and a fixed date of withdrawal, known as the maturity date. While CDs don’t have monthly fees, most have an early withdrawal penalty. First National Community Bank has outlined everything you should know about CD accounts so you can determine what term and interest rate best suits your financial circumstances and goals.

  1. How Does A CD Work?

A CD offers varying interest rates that are locked in once you select the term in which your funds are held. Like other deposit accounts, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account at banks and credit unions.

  1. What Is A CD Term?

A CD term is the period of time a CD is opened and chosen by a customer in advance. CD funds are locked in for a term that generally ranges from three months to five years. There are, however, some banks that offer CD terms as short as one month and as long as 10 years.

  1. What Is APY?

APY stands for Annual Percentage Yield, which is the effective annual interest rate earned for a particular CD. A CD's APY depends on the frequency of compounding and the interest rate. Since APY measures the actual interest earned per year, you can use it to compare CD's of different interest rates and compounding frequencies. As a rule of thumb, the longer the term of the CD, the higher the yield you'll receive. Not only will your interest rate improve with a longer-term CD, but so will the amount you collect at the end of the CD’s term. 

  1. Is It A Safe Investment?

CDs are considered one of the safest ways to grow any money you don't need to access in the short term because the interest rate or APY is fixed for the CD term. This means your interest rate won't fluctuate during the CD's term and your return is guaranteed. For example, if the stock market plummets, you won't have to worry about the safety of your CD's principal and you'll still earn the same amount of interest that you were promised.

Also, like other deposit accounts such as checking, savings and money market accounts, the money you put into the CD is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per account. CDs sold by FDIC member banks like First National Community Bank are FDIC Insured, making them essentially risk-free within the FDIC insurance guidelines.

It is important to note that not all financial institutions are FDIC-insured. Banks and savings associations that are insured by the FDIC will display the FDIC logo on their premises and websites. You can also visit the FDIC website to check to see if your bank is insured: https://www.fdic.gov/  

  1. Does A CD Have A Minimum Deposit Requirement?

CDs usually have a minimum deposit requirement, which can range by financial institution from $0 upward. The average minimum opening deposit on a CD is $500.

  1. What Happens When A CD Term Is Up?

A CD’s term is over when it reaches its maturity date, at which time the bank returns your money with the interest that was earned. Most CDs automatically renew, locking in your money for a new fixed term without any action required from you, however you can opt out of renewing and choose to cash out upon maturity instead. In addition, a grace period is typically given after a CD matures. During the short window a grace period affords, you can take the money out of your CD and place it into another account or simply close the CD account.

Understanding what a CD is and how they work is an important part of your financial strategy. As your locally owned community bank of choice, the success of your financial future is top of mind. We offer Personal Checking Accounts, Money Market, Personal Savings Accounts, CDs, IRAs, Business Loans, Treasury Management Services, Mortgages, Personal Loans of all shapes and sizes and much more! To learn more about First National Community Bank’s financial solutions, contact us here.

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