How Beneficial are Certificate of Deposits

Certificate of Deposits, otherwise known as time deposits, are commonly savings accounts that are put in the bank over a set period of time with a preset interest rate and can only be withdrawn on maturity.  Based on the arrangement with the bank or institution, CD maturity can be as little as a month or up to five years. 
CDs are virtually risk free in the sense that it is insured (insured by the FDIC for banks or by the NCUA for credit unions) to a large extent like a savings account.  Until December 31, 2013, lone depositors are insured for $250,000 and $250,000 per dual saver in a joint account. Subsequent to the said date, the protection will be $100,000 per account - be it individual or joint.

HOW TIME DEPOSITS WORK. Banks call for a minimum deposit to initiate a CD.  Short term savings are best suitable for Time Deposits. The reason behind this is that inflation is only going to destroy it if you were to tie your money for 5 years.  CDs are offered by various banks and financial institutions at varying rates of interest. High rates of interest are more often than not earned on $100,000 deposits or better, but the opposite may also be correct.

ADVANTAGES OF CDs.  Superior interest rates appeal to depositors wanting a superior yield than ordinary savings or checking accounts.  Aside from this, CDs are safer and less unpredictable unlike all the alternative money markets available. Despite market inflation, your return on investment is guaranteed due to the permanent rate of interest.  Opening a CD is as hassle-free as opening a regular savings account. All you need to do is to walk in your bank of choice, show them the needed requirements and you should be able to walk out with a CD in possession. The nice thing about getting a CD is its transparency.  When you initiate a CD, you will obtain a certificate disclosing the stipulations and the sum of return at maturity.

DRAWBACKS OF CDs. In contrast to riskier investments, CD are safe but they earn a reduced amount of return. Additionally, your money is pledged for the length of the CD and you will not be allowed to take it out without having to pay a considerable withdrawal penalty. If the market situation change and interest rates become more positive, you will not be able to take advantage because the CD's rate is permanent. Since the protection for CDs is only $250,000 per deposit in a single financial organization, you will be required to open another CD in another institution if you want to invest more than $250,000. Taking into account all these ramifications is complicated more so by real life.

WHAT TO LOOK FOR.  To earn the highest return on your funds, you will need to look for banks with the greatest interest rates.  It is also recommended to pre-plan your financial requirements so that you will be aware of how long it is recommended to retain your money in a time deposit.