Bill Gerhard: Hi! I am Bill Gerhard, Director of Financial Services for AAA. Today I am going to begin our discussion on how to invest CDs, Money Market and Savings Accounts by explaining what each one is.
What is a CD?
A CD is a time deposit account offered by banks and credit unions. CDs are different from Savings Accounts because they have specific fixed term, typically 3 months to a long as 10 years.
CDs also usually have a fixed interest rate, the longer the term the higher the interest rate. Like Savings Accounts, CDs from banks are insured by the FDIC. CDs issued by credit unions are insured by the NCUSIF.
Both insure depositors up to $250,000 per category through December 31, 2013. CD terms and rates vary between providers but typically minimum deposit and may offer higher rates for larger deposits.
A CD will typically start earning interest from the date of deposit. The interest your CD accrues may be paid out as it accrues or may accumulate in the CD. You are probably familiar with Savings Accounts, you deposit money with the bank or credit union and get access to your money by writing checks or using a Debit/ATM card.
Another savings options is a Money Market deposit account which is a special type of savings account. A Money Market deposit account typically pays a higher interest rate than a Savings Account. You may be required to maintain a minimum balance in this account but you do have instant access to your money with no penalties.
However the number of payments to a third party is limited by Federal Law. I hope this is helped you begin to explore whether CDs, Savings Accounts, or Money Markets Accounts are right for you.
AAA offers the information in the video series for educational purposes only. Carefully consider objectives, risks, expenses and tax implications before investing. In our next video, I'll talk about Compounding Interest and explain comparing APR and APY.