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CD stands for
Certificate of Deposit. This type
of investment is offered through banks,
credit unions and savings and loans.
Here's how they
work in a nutshell:
You will put your
money, say $1000, into a CD for a
specific amount of time (6 months, 1
year, up to 3 years) and they'll give
you a bit better interest rate than
you'd get with a regular savings account
or even a money market account.
You are loaning the bank money at 3% so
they can turn around and loan it to
someone else at 9%.
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CD's are
completely safe since they are done
through banks that are FDIC (Federal
Deposit Insurance Corporation) insured.
The only catch is
that you can't take your money back out
until the time is up -- unless you want
to pay a stiff penalty. So, you
have to be able to completely live
without that money during that time.
Of course, the longer the time
commitment, the higher the interest rate
will be...
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But, the longer you'll
have to be without your money.
Also, you'll have to pay state and
federal income tax on the interest.
Considering all
this, municipal bonds from your own
state are still the best way to go for a
nice, safe investment... They'll
pay out a better interest rate and you
can sell them at any time.
If you want to buy
CD's, definitely do some research on the
Internet for the best rate. You'll
probably be able to find a higher rate
than what your local bank is offering.
You can
search for the best CD rates using our Google "safe
search" option. Or you can search for a different
topic on Finance FREAK. A new window will open
with your results.
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