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“What are the risks of a Certificate of Deposit?”
While Certificates of Deposit (CDs) are typically a safe investment, there are some risks to navigate. Before investing in a CD, be aware of the following:
- Hands-off policy after funds are invested. Only invest funds in a CD that you will not need during the established time period. Once you invest in a CD, you’ve agreed to restricted access to the money until the set time frame is up.
- Penalties for withdrawing money early. Withdrawing money from your CD account can result in penalties, such as several months’ worth of interest.
You may consider funding a seperate savings account in case unforeseen circumstances require additional money from savings. This can help negate the risk of a CD.
Make sure you fully understand the terms and conditions before creating a CD account. Most banks and credit unions publicly share this information. For example, Education Credit Union, which serves Amarillo, Bushland and Canyon, Texas, lists all the terms, payment frequencies, annual percentage yields and minimum earning balances on their website.