Eli5 how do investment cds work
In: 7
It’s like a savings account with return interest rates that increase the longer you hold your money there. Holding for 3 months? Lower rate. Holding for 2 years? Higher rate.
You can also picture it like a guaranteed decent-performing stock. If you put $5,000 into the stock market, you could lose it all or make a bunch more. If you put $5,000 in a certificate of deposit (CD), you know what rate you are getting (although it can go up or down depending on other world factors) and are guaranteed to make some money.
Lots of people like to build their CDs in “ladders”. The idea being that you have multiple CDs maturing (when the term ends and you get fully payed out with no penalty) in staggered time intervals (3 months, 6 months, 1 year) so that when one finishes, you have free money to use or reinvest into another CD that will further your financial ladder.
Join the r/personalfinance community. They’re a freaking Godsend to my savings account and really opened my eyes to how much “free money” I’m not taking advantage of.
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