Indexed CD Rates

One of the most low-risk investments you can make is a certificate of deposit, or CD. These are offered by banks, credit unions and other financial institutions. A traditional CD will pay out a specific interest rate upon its maturity date. The rate is often fixed, which means if the market fluctuates your rates will not change. Indexed CD rates can change. This type of CD has rates that depend on an index, therefore the rates may fluctuate. This is why these certificates of deposit are also called variable rate CDs.

Indexed CD rates may depend on the stock market, inflation, even foreign currency. So, your interest can go up or down in a big or small way depending on the index on which the CD is based and its performance. Some banks, credit unions and other financial institutions offer certificates of deposit that are like the indexed variety but have some differences. One type is called the step-rate CD. The step-rate CD pays interest rates that gradually go up. Step-rate certificates of deposit can be compared to a fixed rate CD with some calculations.

Another type is the bump-up CD.  This type of CD is a lot like an indexed CD. This is because the investor waits to find out what the return will be. They are different in that they are not based on an index and in order to raise the rates the CD holder must speak with the bank. One thing you should know is that banks, credit unions and other lending facilities want you to buy CDs, so they are quite competitive with their marketing. It pays to comparison shop before purchasing a certificate of deposit.

No matter what kind of CD you ultimately choose, it should make a good addition to any portfolio. In general, certificates of deposit are fairly low risk. And while traditional and indexed CD rates may not be as high as the profits you might make on the stock market or through other types of investments, the risk is lower. Certificates of deposit are ideal for first time or beginning investors. They also make good gifts for kids and teens. They are considered fairly long term, you can choose how long you want to hold the CD which can range from six months to several years. Also there are deposit minimums on CDs depending on where you obtain yours and the various terms and conditions associated with it.

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