Certificates of Deposit, or CDs, are an investment vehicle
designed for the longer-term investor. With a CD you commit to
keeping your money at the bank or savings institution for a
specific period of time, and in return the bank agrees to pay
you a higher rate of return than is paid on the familiar savings
or checking account. Certificates of Deposit have a variety of
rates and terms, and investors should check carefully to find
the best CD rates and terms for their savings goals. The term of
a CD can be anywhere from one month to 10 years or even longer.
Typically, the longer the term, the higher the interest rate
paid on your money. However, the longer the term the more you,
the investor, expose yourself to interest rate risk. This
happens when your money is tied up in the CD at one rate while
interest rates on other investments are rising. For example, if
you buy a 5-year CD at 3%, and one year into the term rates have
risen to 5% or even 6%, you are now earning a much lower rate
than could be had elsewhe