Certificates of Deposit

1. Certificates of Deposit A certificate of deposit or CD is a time deposit, a financial product commonly offered to consumers by banks, thrift institutions, and credit unions By.Kainalu Ka’ulula’au

2. Compare & Contrast • CDs are similar to savings accounts in that they are insured and thus virtually risk-free; they are "money in the bank" • They are different from savings accounts in that the CD has a specific, fixed term, a fixed interest rate.

3. Interest Payout • At most institutions, the CD purchaser can arrange to have the interest periodically mailed as a check or transferred into a checking or savings account.

4. FixedRates • Fixed rates are common, but some institutions offer CDs with various forms of variable rates. For example, in mid-2004, with interest rates expected to rise, many banks and credit unions began to offer CDs with a "bump-up" feature. These allow for a single readjustment of the interest rate, at a time of the consumer's choosing, during the term of the CD.

5. BumpUp • A Bump Up CD allows the account holder the option to increase the interest rate once during the term of the CD. Upon request, the bank will “bump up” the interest rate on the certificate of deposit to a higher rate being offered by the issuing bank on that CD (or a comparable term CD). The rate change does not change the original maturity date of the CD.

6. Penalties • May be measured in months of interest, may be calculated to be equal to the institution's current cost of replacing the money, or may use another formula. May or may not reduce the principal—for example, if principal is withdrawn three months after opening a CD with a six-month penalty.

7. Reference • http://en.wikipedia.org/wiki/Certificate_of_deposit#Brokered_CDs • http://en.wikipedia.org/wiki/File:US_Postal_Savings_System_5.jpg