Certificates of Deposit – Non-traditional CDs

By | April 4, 2013
Apart from the traditional certificates of deposit discussed in my earlier posts there are other types of CDs as well.

Liquid Certificates of Deposit – These allow you withdraw from your certificate of deposit at any time (generally after 7 days as mandated by the government). However you will get a much lower rate.

Bump-Up Certificates of Deposit – These allow you to ask your bank to raise the interest after a certain period. They work well in a period of rising interest rates however the downside is that you will get a much lower rate to start with…and it may be a while before your bank issues a new higher rate that you can bump it up to.

Callable Certificates of Deposit – In a period of falling interest rates, the bank may call your CD after a certain period. So if you purchased your CD for 6% and the rate falls to 5% after 1 year, the bank can call it (retire it) and re-issue the CD for 5%. You would get a higher interest to begin with to make up for the risk of the CD getting called.

Zero-coupon certificates of deposit – Here you would buy the CD at a deep discount to get a par value at the end of the term. So you could purchase a $50,000 CD for $25,000 for a period of 10 years. You would not get any interest payments in the meantime.