How does a Bank Certificate of Deposit (CD) Work?

By | October 23, 2017

How does a CD Certificate of Deposit Work?

Certificate of Deposit is one of the most preferable options of the investment. It’s a low risk investment option for those who don’t plan to use their money immediately. The interest rate which is paid by bank on certificate of deposit is little different from the interest rate which is offered by money market. Generally the income from certificate of deposit is taxable except those which are exempted from the tax.

CD certificate of deposit pros and cons

It’s a safest way for the investment for particular period and it is guaranteed to get back within the specified time of maturity. It can be said that it is the best way to put your extra money for relatively short time period. If you withdraw your money before the maturity period you have to pay the penalties for that. Interest on certificate of deposit is automatically deposited into your saving account monthly, quarterly or yearly.

There are two factors are most important while you are going to invest in certificate of deposit such as interest rate and the time period of maturity. If you have extra money which you don’t need for a long time and your financial institute offers you a good interest rate you can invest your money in the certificate of deposit. It’s the best and safest option for investment.

How to cash a Certificate of Deposit?

You should be aware of a maturity date of certificate of deposit. Usually banks sends you notice regarding your CD which will be expired in the short time. Generally it sends you notice before 20 to 30 days from the date of maturity.

After receiving CD maturity notice you should visit your bank where you have invested in CD. Ask banker about the procedure to cash a certificate of deposit.

You should bring your photo ID proof to cash your certificate of deposit and tell banker that you desire to cash a certificate of deposit. He will give you all information about encasement of deposit whether it’s a beneficial for you or not.

If you decide to cash certificate of deposit follow a legal procedure and sign the required documents. After completing all formalities you will get amount of deposit and the interest on CD. You can take cash or deposit with your saving account.

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