CDs are still in

Fernando J. Saballos, Contributor

The truth about investing is that it’s not as simple as buying shares of stock and hoping to make a profit. It requires money and commitment, and at this stage in our lives, hiring a professional money manager is most likely out of the question.

This obstacle makes investing a turn-off to those who do not have the time, energy, or resources for it. However, if a student still wants a way to earn income with minimal time and efforts, he or she can breathe easy: the certificate of deposit, or CD, exists for just that reason.

A CD is a savings certificate with a fixed maturity date and specified fixed interest rate that can be issued at any amount above what is stated as the minimum required amount. Essentially, it’s a specialized savings account with a bank that pays you a higher interest rate.

What distinguishes a CD from a traditional savings account is liquidity, or the immediate accessibility to your funds. With a savings account, you can withdraw or transfer funds at the click of a button without hassle. With a CD, you will be charged a penalty for early withdrawal.

CDs vary in initial investment amounts and interest rates. Under typical market conditions, long-term CDs have higher interest rates when compared to short-term CDs. In addition, because an individual is forgoing the opportunity to utilize the funds for a specific period of time, he or she is compensated by earning more interest.

For example, in one year, $1000 in a savings account bearing a measly .01-percent interest rate would earn just 10 cents, whereas that same $1000 could earn $20 in a 2-percent interest rate CD. Investing in a longer term CD will cause that spread to increase more.

The majority of commercial banks and credit unions offer CDs, but you are not limited to investing with one at your current bank. Rates vary from banks and maturity dates, but the terms will be laid out. The Wall Street Journal publishes top-rated CDs from different banks. If you’re looking to save your money, you might as well get something in return.