Certificates of deposit (CD’s) are time deposits usually at a fixed interest rate and fixed maturity. Many financial institutions offer CD’s including banks, thrifts, and credit unions. CD’s are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) and by National Credit Union Administration (NCUA) for credit unions.
Some CD’s have additional features such as a call feature or step-up. The call feature allows the issuing institution to “call” or redeem the CD. In this case, the financial institution returns the principle and interest to the investor before the maturity date.
Some CD’s contain step-up provisions or a schedule of interest rate increases. These are usually longer dated maturities with a starting interest rate that increases at periodic times. For example, a 10-year CD might begin at one level and increase in the 3rd year and again in the 7th year.
There are other strategies available to CD investors such as laddering. Kerr Financial Group can help you understand how CD’s fit into a financial plan.