Ramses Delgado, Banking Moderator
@ramses_delgado1
The four main types of certificates of deposit (CDs) are categorized based on their features and how they function. These include traditional, bump-up, no-penalty, and jumbo CDs. Here’s a clear rundown:
- Traditional (or Fixed-Rate) CDs: These are the most common type, offering a fixed interest rate for a specified term. They provide a predictable return on investment and are best suited for conservative investors looking for a low-risk savings option.
- Bump-Up (or Step-Up) CDs: With bump-up CDs, you have the option to increase your interest rate if rates rise during the term. Typically, you can "bump up" your rate once or twice during the CD's term.
- No-Penalty (or Liquid) CDs: These CDs allow you to withdraw your money before the maturity date without incurring a penalty. However, they may offer a slightly lower interest rate compared to traditional CDs.
- Jumbo CDs: These are like traditional CDs but require a much higher minimum deposit, usually $100,000 or more. In return, they often pay slightly higher interest rates than standard CDs with the same term. They’re aimed at big savers or institutions, though the rate boost isn’t always dramatic.
There are other variations, such as variable-rate CDs (rates tied to an index), callable CDs (the bank can end them early), add-on CDs (you can add money to the original deposit), and brokered CDs (sold through brokers), but these four are the core types you’ll see most often.
You can check the best CD rates available to ensure that whatever decision you go for really fits your goals.
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