Question about CD's

**Holly** · 02-08-2008, 05:05 PM

This is going to sound dumb..

How do they work? I have never looked into them but thinking about it if it will help save money.
Could someone please explain this to me...
TIA

**wulong32** · 02-08-2008, 05:27 PM

Well, if you shop around you can usually get a higher interest rate on a CD than regular savings account, especially now that even online high yield savings accounts keep going down in interest. The thing with CD's is that you are loaning the bank money for a specific period of time, usually anywhere from 6 months- 5 years. The longer you loan the money for, generally the higher interest rate they pay you. The thing is, you can not take money out before that time is up without penalty, so it is definitely not somewhere you would want to put something like an EF into.

**PrairieRose** · 02-08-2008, 10:05 PM

It's a certificate of deposit and you can borrow against it using it as collateral, hence saving interest if you're not in a precarious situation. They are a fairly safe way to earn a fairly low rate of return compared to the stock market (mutual funds, individual stocks, etc...).

**frugalfarmwife** · 02-08-2008, 11:13 PM

Ok, it's a savings account you don't want to touch for the life of the term. Now I DO use them for an emergency fund, but I have a larger amount put away.

If you take the money out before the end of the term (usually 6 months to 5 years) there is a penalty, on the 6 month CD's the penalty is 3 months interest with ING.

What I've done is called laddering CD's. I have 6 separate 6 month CD's, one coming due each month on the 1st of the month. That way if I have an emergency I can use a credit card to pay for the emergency and have the cash to pay it off.

Some banks/institutions have a minimum you can deposit (normally $1,000) however with ING there is no minimum deposit, the minimum time on their CD's is 6 months.

I really miss the days of 7 day CD's, sigh, used to have 4 of them and deposit weekly into each one.

This CAN work very well for saving. Right now ING's rate for the 6 month CD's is I believe 3.55%, not as high as some other online banks, but I'm comfortable with ING, have been a member for two years now.

Any other questions let me know

More than happy to help.

kj