Do you have money you want to invest or keep safe? You have many options to protect and grow your money, among them are Certificates of Deposit (CDs). CDs offer many advantages to investors, along with some drawbacks that should be considered, including minimum deposit requirements in many cases.
Who sets the minimum deposit for CDs?
Banks set their own minimum deposit requirements for Certificates of Deposit – there are no federal regulations that establish a standard. This means that minimum deposit requirements can vary significantly, with some banks having no minimum while others require $500, $1000, or more.
Typical minimum requirements for Certificates of Deposit
Banks set different minimum deposit requirements for their Certificates of Deposit, so you will find a wide range depending on the bank and other factors.
Standard CDs
Generally, minimums for Certificates of Deposit start around $1000, but this will vary depending on the type of CD you choose. Some banks offer a variety of CDs with different terms and yields to meet their customers’ needs. Some CDs may offer special features such as a rising rate, no withdrawal penalties, or high yields.
Specialty CDs
In addition to standard CDs, many banks offer specialized Certificates of Deposit that may include higher interest rates, penalty-free withdrawals, changes in interest rates, and the ability to add additional funds. For example, Ally Bank offers a specialized CD called “Raise Your Rates” that allows you to change the interest rate if it rises during the term of the CD. This can be done once with a two-year CD or twice with a four-year CD. California Coastal Credit Union offers a “Take 5” CD, with minimum deposits ranging from $500 to $5000, and the term of this CD is only five months but offers an interest rate of 5%.
Additional costs when investing in Certificates of Deposit
In addition to minimum deposit requirements, you should also consider any additional costs associated with opening and using a Certificate of Deposit. Let’s take a closer look at some of these costs.
Early withdrawal penalties
Since Certificates of Deposit have fixed maturity dates, you will typically pay a fee if you withdraw your money before this date. The fees will depend on the bank and the term of your CD.
Trading fees
In addition to standard CDs, you may be able to purchase a brokerage CD. These are typically offered by stock brokers or other investment professionals. They can be more complex and may take longer than a standard CD. Brokerage CDs may charge trading fees either as a percentage of your investment or as a flat dollar amount. Before purchasing a brokerage CD, be sure that the interest you are earning on the CD is worth the fees.
How to reduce fees when investing in a Certificate of Deposit
If you want to reduce the fees you pay on a Certificate of Deposit, you have some options, each with its own advantages and disadvantages.
Open specialized Certificates of Deposit
Specialized CDs offer unique terms such as rising interest rates or the option to add more funds to the CD. One type of specialized CD does not impose withdrawal penalty fees.
Hold until maturity
A surefire way to avoid early withdrawal fees on a CD is simply to invest your money until maturity. On maturity date, you can withdraw your funds and reinvest them, along with any interest you have earned.
Certificates of
Medium Deposits
Medium deposit certificates are those purchased from a broker who bought them from the bank. Medium deposit certificates typically have longer terms and trading fees, although not all of them do. You may also see minimum deposit limits of $10,000 or more. Medium deposit certificate fees should be avoided unless you are a skilled investor. Some medium deposit certificates may not be insured by the FDIC.
Frequently Asked Questions
How does a Certificate of Deposit (CD) work?
A Certificate of Deposit (CD) is an investment vehicle. You can open a CD online through the bank. You will choose the amount you wish to keep in the CD and the length of time you want to hold it. Once the money is deposited, you generally will not be able to withdraw the funds without a penalty until the term ends.
When is a Certificate of Deposit (CD) the best banking option?
A CD may be a good option if your priority is capital preservation but you want to earn returns. A CD typically earns more interest than a standard savings account, but it does not offer the potential for high returns like other investments such as stocks.
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Sources:
- Ally. “No Penalty CD: Withdraw Money Penalty-Free.”
- U.S. Bank. “Certificates of Deposit – Flexible CD.”
- Bank of America. “CD Accounts – Certificate of Deposit (CD).”
- FDIC. “Are My Deposit Accounts Insured by the FDIC?”
- Capital One. “Online CD Savings Accounts & Interest Rates.”
- Chase. “Open a Chase Certificate of Deposit Account.”
- Ally Bank. “High Yield CD: Great CD Rates, CD Calculator.”
- Ally Bank. “Raise Your Rate CD: Flexible 2 & 4 Year CD Rates.”
- California Coastal Credit Union. “Take 5 Certificate.”
- Capital One. “360 CD Account Disclosures.”
- FINRA. “Certificates of Deposit (CDs).”
Source: https://www.thebalancemoney.com/what-is-the-minimum-deposit-to-open-a-cd-5225874
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