Certificates of Deposit (CD)

In addition to saving in the bank savings account, you can consider putting money into a Certificate of Deposit, also known as a Time Deposit.
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Certificate of Deposit

A CD (Certificate of Deposit) is like a Fixed Deposit, where you can

  • invest a certain amount
  • for a specific period of time (max up to 5 years)
  • with any Bank, or Credit Union
  • at an interest rate

If you withdraw money from the CD before its maturity date, you are likely to lose some interest. Generally, the rule is that the longer you keep the money, the higher interest you will get. There is no fee to purchase CDs.

I am on H1 Visa. How should I evaluate a Certificate of Deposit? Is it good to invest in Certificates of Deposit?

Here is a list of some pros and cons of investing money in the Certificates of Deposit while on the H1 visa:

  • CDs are one of the good ways to get a relatively high interest rate for your savings.
  • Normally credit unions offers better rates than most of the banks.
  • Terms and interest rates vary from bank to bank, or credit union to credit union.
  • In many cases, the interest is not paid on a CD until it matures. However, for longer term CD’s, interest may be credited to your account.
  • On a time bound work visa like the H1 visa or the L visa it is a bit risky to put money on the Certificates of Deposits. While the return on investment is good, the deposit itself is bound for some specific period of time. When a person is winding up his affairs to go back to his country (after his visa validity period expires) he wants to clear all that he owes.
  • Although the CD holder can withdraw the deposit before the maturity date, there is a risk of being charged with an early withdrawal penalty and also losing some interest

There are however many banks and credit unions that have risk-free CDs with no early withdrawal penalty or that do not require a written notice of a future withdrawal. At other times, banks and credit unions run limited time promotions to encourage new investors. As such it is better to shop around for CDs that best suit your needs.
The basic savings needs for a person holding the H1 visa are: savings for marriage, savings for starting a family, savings for education of children or spouse, savings for purchasing a home, etc. Look at your financial planning goals and then make an investment in CDs.
Think in terms of what returns you seek from your investments. Typically a CD yields a fixed interest rate over a fixed period of time. If you are looking for a stable income, you should consider investing in CDs. If you are looking at a high risk portfolio, you must consider other investment vehicles like stocks, etc.

Are they safe? What if the bank or credit union goes bankrupt?

Normally, most banks and credit unions by default are insured by Federal Deposit Insurance Corporation (FDIC) up to a certain limit. So you don’t actually lose anything, but its always prudent to ask more about this, especially in the current economic times.

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