Certificates of Deposit
Better known as CDs, time deposits allow you to invest a fixed sum of money for a fixed term. In return for your deposit, the bank guarantees you an interest rate – usually higher than a savings account. A drawback is there is usually a penalty for early withdrawal of funds, which might make it difficult if you need the cash before the CD matures. The advantages to using CDs include:
• FDIC-insured. CDs have the benefit of being FDIC-insured on deposits of up to $250,000 per depositor depending on account ownership.
• Yield. When you buy a CD, you may consider the rate that you will yield on your money. If you'd like to see how much interest you can earn on a Certificate of Deposit, you should look for interest-earning calculators on financial institution Web sites. This tool will help forecast a detailed schedule of your CD's balance and interest earned, showing you how your money could grow.
• Options. There are Non-IRA CDs and IRA CDs that have different features and restrictions on minimum account openings, interest rates (with IRA CDs interest rates can be variable), service charges, deposits. Please be sure to ask your banker for details before you open your account.
Money Market Accounts
If you need quicker access to your cash, consider high yielding money-market deposit or savings accounts. Unlike CDs, with these investments you can access your money the day after you open the account. Since these generally have higher minimum deposit amounts than a regular checking account, the rate of interest paid is higher. Money market accounts offer other benefits including:
• Check-writing privileges. You may also have check writing privileges, but usually there is a limit on the total number of transactions that you can make each month. As with bank accounts, the funds in money market accounts are insured by the FDIC.
• Interest earned. Interest is variable depending on market rates and is compounded and paid monthly. Interest is also tiered, meaning the more money you have in an account the more interest you can earn.
• Immediate access to money. Being able to access your funds may make these accounts more inviting to some wary investors. With money market accounts you can obtain cash when you need it and there are no penalties for withdrawing out funds.
The foregoing article is intended to provide general information about investment strategies for business owners and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.
[Lawrence Henry is a senior vice president and regional manager for Union Bank, N.A., a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations. As of May 10, 2010, the bank had 397 banking offices in California, Oregon, Washington and Texas and two international offices. UnionBanCal Corporation is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a subsidiary of Mitsubishi UFJ Financial Group, Inc. Union Bank is a proud member of the Mitsubishi UFJ Financial Group (MUFG, NYSE:MTU), one of the world's largest financial organizations. Visit www.unionbank.com for more information.]