Modern banking institutions are able to offer their customers a range of financial products and tools that can allow individuals to take control of their financial planning and growth. CDs can be an extremely popular form of investing that many banks will offer. However, these financial instruments can be misunderstood by the customers that could benefit from adding them to their portfolios.

Myth: CDs Are Only For Small Amounts

While it is common for individuals to use CDs as a method of investing relatively modest amounts, it should be noted that the maximum amount of the CDs offered by banks can be fairly substantial. This can allow individuals to ensure that they are able to purchase a CD for the amount that they are needing to effectively balance their portfolio or reduce their risk.

Myth: All Banks Will Offer The Same CD Rates To Their Customers

The current rate on CDs will be largely similar from one bank to another. This can lead to individuals assuming that there is little need to comparison shop. While the differences in the CD rates may seem extremely minimal, even small changes can amount to sizable differences. This is especially true for those that are choosing to invest in a particularly large CD or one that is for an especially long period as these difference can quickly compound in these situations to result in major differences in returns. Luckily, banks will typically make it easy to compare CD rates as they will provide information as to the return that you can expect for the amount you are investing. Fortunately, you are not limited to your primary bank when it comes to shopping for CDs, and this will allow you to take advantage of the best interest rate possible.

Myth: A CD Is The Same As A Money Market Account

Money market accounts are another popular financial product for banking customers. These accounts will function in a similar way to a traditional checking account. However, money market accounts differ in that they pay small amounts of interest for the money that is held in them. In contrast, the money that is held in a CD can not be used until the term of the CD has ended. If you are forced to withdraw this money before the term has ended, you will likely incur penalty fees. As a result, you should be mindful to only invest money in a CD that you are unlikely to need until the term has ended.