Posted on June - 19 - 2011
Is a CD a type of Savings Account?
A CD is actually a certificate of deposit, and to answer the question, yes a certificate of deposit is a type of savings account. At least it is an investment that people make to help them save money, and to make what make what money they have grow.
Traditionally you purchase a certificate of deposit from a bank, a credit union, and even from brokerage firms and from financial advisors. These certificates are something akin to the old savings bonds, or war bonds that people once bought. The certificate has a face value. You may purchase one for $250.00. Or whatever amount you can afford to invest for a long period of time. The length of time a certificate of deposit is good for is referred to as a term. You can choose a three year term, a five year term, a ten year term, a fifteen year term, and so on and so forth. If you leave the certificate of deposit alone for the full term you agreed to you will draw a high interest rate on your initial investment cost.
You can find these types of savings certificates that will draw more than ten percent interest. If you cash the certificate of deposit in before the agreed term is over, then you will be charged a penalty fine for early withdrawal of the funds. These penalty fines can be quite steep, so you really want to do everything you can to avoid touching your CD before the term is completely mature. The longer the term you choose for the certificate of deposit the higher interest rates you can receive, and therefore the more money your initial investment can make for you. Many people purchase these CDs and allow them to mature, they cash them in, and then they reinvest the original amount plus the amount they earned in interest, in another CD.
By reinvesting the money in this manner you can take your original $250 dollars you invested, and turn it into several thousand dollars by the time you reach retirement age.
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