Certificates of Deposit 101: When and Why You Should Open a CD

In today's financial landscape, you need a secure and reliable way to grow your wealth. Cornerstone Bank understands the necessity for low-risk investment options with attractive returns, which is why we now offer an array of certificate of deposit (CD) options. In this blog, we guide you through “Certificates of Deposit 101,” to explain what a CD is, how it works, and how it can be a valuable addition to your investment portfolio.

What is a Certificate of Deposit?

A CD is a type of time deposit account that offers a fixed interest rate over a specified period, known as the term or maturity period. Unlike regular savings accounts, CDs have a fixed term, and funds deposited in a CD cannot be withdrawn before the maturity date without incurring penalties.

How Does It Work?

When you open a CD, you agree to keep your money deposited with the bank for a predetermined period, ranging from a few months to several years. During this period, your money earns interest at a fixed rate, which is typically higher than what you would receive from a regular savings account. The interest rate is determined at the time of purchase and remains unchanged throughout the CD's term, protecting you from fluctuations in the market.

What Are the Benefits?

CDs are perfect for savers who can keep their money deposited for set periods, thereby gaining the maximum return on their savings. The benefits include:

  • A Secure and Low-Risk Investment. Our CDs are considered low-risk investments because they are backed by a combination of the Federal Deposit Insurance Corporation (FDIC) and the Deposit Insurance Fund (DIF), making your principal investment protected.
  • Guaranteed Returns. With a CD, you know exactly how much interest you will earn over the term. This predictability allows for effective financial planning and ensures that your investment grows steadily.
  • Higher Interest Rates. CDs generally offer higher interest rates than regular savings accounts. The longer the term, the higher the interest rate tends to be. By choosing a longer-term CD, you can maximize your potential returns.
  • Diversification. Including CDs in your investment portfolio can provide diversification, reducing overall risk. By allocating some of your funds to CDs, you balance out riskier investments such as stocks and bonds.