FDIC Certificates of Deposit

In today's turbulent economy, investors are always seeking safe and insured savings products, such as FDIC Certificates of Deposit.

Purchasing a Certificate of Deposit allows you to invest a specific amount of money for a set period (usually a few months to a few years), and in return you receive a guaranteed interest payment for that period. Since you are willing to invest your money and promise not to withdraw it for a certain period, you can enjoy higher interest rates than your standard FDIC-insured savings account.

FDIC is the term used for Federal Deposit Insurance Corporation which covers anyone who deposits money into savings accounts at any bank. The history of the FDIC is interesting. The federal government instituted the program in the 1930s following the bank failures going on at the time, where both savings and loan institutions and some commercial banks became insolvent. Millions of dollars of savings were at risk. The federal government's response was increased regulation and federal insurance of savings accounts. On October 3, 2008, the insurance limit was increased from $100,000 to $250,000, however the increase is only temporary, and will end on December 31, 2009. The FDIC insurance covers checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), as well as all checks drawn on those accounts.

CDs are one of the few investments where you can earn higher interest while having your money insured against loss. Most other investment accounts, such as stocks, bonds, mutual funds, or money market funds, all provide the opportunity for high interest, but they also come with the risk of tremendous loss if the financial markets ever rapidly decline.

FDIC certificates of deposit are perfect for:

• Older investors, close to retirement, who need safe investments for their nest egg
• Conservative investors who need a safe investment vehicle as only one part of their overall investment portfolio
• Young investors first learning how to make their money grow
• Ultra-conservative investors who do not want to risk losing any of their money

Investing in a CD is as simple as putting money in a savings account. All you need to do is walk into your bank and ask to purchase a CD. If you choose to invest in CDs through a brokerage firm, there are a few additional questions you'll need to ask.

Walk into your bank and you'll likely notice advertisement posters up about the types of CDs the bank offers, as well as the current interest rates they offer. CDs typically come in a fixed amount at a fixed length of time. The longer the length of time you are willing to let the bank hold your money, the higher the interest they will pay you. You may even choose to purchase one CD for a few months, and another CD for a year or two. What you choose depends on how long you are willing to invest with your money, and if the difference in interest is significant enough to make the longer term much more profitable.

Brokerage firms also typically offer CDs, but many times the CD products they offer can be far more complicated than the simple ones you obtain from your bank. Brokerages often offer very high yield CDs, which sound excellent to an investor who is looking for a high return on a very safe investment. However, these CDs usually have "call" features which allow the bank issuing the CD to terminate the CD if federal interest rates drop far below the rates you obtained when you bought the CD. These CDs can appear unfair to investors, because if interest rates rise significantly, you do not have the option to "call" the CD. While this may work out well for short-term investors, the best option for long term investors is usually to avoid these types of CDs, and make sure the CD you are purchasing from the brokerage is a long-term, high-interest CD that can't be called.

CDs that are FDIC insured are an important part of any investment portfolio. While it's important to invest with enough risk to achieve some of the high returns that are possible with stocks, savvy investors always invest a certain portion of their money into safe investments such as certificates of deposit. CDs are also simple and affordable ways for people who are new to investing to learn how the process works, and how powerful saving and investing can be.

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