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What is a Traditional CD (Certificate of Deposit)?

Traditional CDs

These CDs are the most common. They typically have minimum deposits of anywhere from 1,000 to 10,000. In the recent down economy, some banks have droped minimum deposit requirements to $1 or even $0, but it doesn’t really make sense to deposit $1 in a CD, as you can’t add to it later. Terms range from 1 month to 10 years.

At the end of the maturity term, you can cash out the CD, usually via check or ACH transfer. Otherwise the CD typically rolls over into a new CD with a similar term. It’s important here to make sure you know when your CDs are maturing, as oftentimes the banks will rollover your CD into a new CD with a lower rate.

There are usually penalties for early withdrawal, which eats heavily into the interest. Sometimes the penalties can even eat into your initial principal as well, so if you’re putting money into a CD you should make sure that you won’t be needing it for a while.

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