Certificates of Deposit (CDs) -- Provide a safe investment with moderate
yields. They are Federal Deposit Insurance Corporation (FDIC) guaranteed up to $250,000 just like any other bank account.
their return is higher than money-market bank accounts, CDs have certain restrictions. CDs require you to lock
up a fixed amount of money (initial deposit) for a pre-determined period of time (term) at a fixed interest rate.
Withdrawing money prior to the maturity date results in a substantial penalty (i.e., forfeiture of a part of your interest).
Generally, the larger your initial deposit and the longer the term, the higher your interest rate will be. Keep in mind
however that once you lock up your money in a CD, you cannot take advantage of any rising interest rates that may become available
in the marketplace.
Brokerage versus Bank CDs -- Brokerage CDs provide additional flexibility and generally
greater returns than Bank CDs for investors with larger amounts of money to invest. Brokerage CDs are issued by
banks for the convenience of the brokerage firms' customers. Brokerage CDs are generally more liquid than bank
CDs since they can be traded on the secondary market and sold prior to maturity (for a reduced return). They can also
be transferred from one brokerage firm to another.