“A Comprehensive Guide to Different Types of CDs”

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Understanding Different Types of Certificates of Deposit (CDs)

At O1ne Mortgage, we understand the importance of making informed financial decisions. Certificates of Deposit (CDs) are a popular savings option that can help you achieve your financial goals. Below, we explore various types of CDs to help you determine which one might be the best fit for you. For any mortgage service needs, feel free to call us at 213-732-3074.

1. Traditional CDs

A traditional CD is a savings account with a fixed-term maturity period, typically ranging from three months to five years or more. In exchange for keeping your money in the account, the financial institution offers a higher interest rate compared to a regular savings account. The longer the term, the higher the yield. Traditional CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000 per owner, making them a secure savings option. However, withdrawing funds before the maturity date can result in penalties.

2. No-Penalty CDs

No-penalty CDs, also known as liquid CDs, allow you to withdraw funds before the maturity date without incurring a penalty. While the annual percentage yield (APY) is usually lower than that of traditional CDs, the flexibility to access your funds can be advantageous if interest rates rise or if you need the money for an emergency.

3. Jumbo CDs

Jumbo CDs require a larger minimum deposit, typically at least $100,000, but offer higher interest rates. Like traditional CDs, they have a fixed interest rate and a designated maturity date. Jumbo CDs are ideal for those with significant savings looking for a low-risk investment. However, only deposits up to $250,000 are insured by the FDIC, so larger amounts may not be fully protected.

4. Bump-Up CDs

Bump-up CDs allow you to increase your interest rate if the issuer raises rates on similar term CDs after you open your account. This feature can be beneficial if interest rates rise during your CD’s term. However, most issuers only allow one rate adjustment, and the initial rate may be lower than that of a traditional CD.

5. Step-Up CDs

Step-up CDs automatically increase your interest rate at scheduled intervals, such as every six months or annually. This type of CD can be advantageous if you expect interest rates to rise. However, the starting interest rate may be lower than that of a traditional CD, potentially resulting in lower overall earnings if rates do not increase as anticipated.

6. Brokered CDs

Brokered CDs are purchased through a broker or brokerage firm rather than directly from a bank or credit union. They often offer higher yields and the ability to hold multiple CDs in one brokerage account. However, brokered CDs may carry additional risks, such as being callable by the issuing bank or not being FDIC insured. Always confirm the insurance status with your brokerage.

7. IRA CDs

IRA CDs are held within an individual retirement account (IRA) and offer higher interest rates along with the tax advantages of an IRA. You can add new funds or roll over existing retirement funds, subject to IRS contribution limits. IRA CDs are best for those who do not need to access the funds until retirement, as early withdrawals can result in penalties and fees.

The Bottom Line

Choosing the right CD depends on your financial situation and goals. CDs can offer higher earnings than traditional savings accounts without the risks associated with stocks and bonds. Before committing to a CD, ensure you understand the terms and potential penalties for early withdrawal. For higher earnings and flexibility, consider a high-yield savings account from an online bank.

For personalized mortgage services and expert advice, contact O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions for your future.

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