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7 mistakes to avoid when opening a CD

7 mistakes to avoid when opening a CD

Most experts believe that a certificate of deposit (CD) is a safe and secure investment option that can provide lucrative returns based on the chosen bank. A CD is a type of savings account offered by banks or credit unions, wherein the invested money is parked for a specified period. Investors might incur penalties if they prematurely withdraw from the account. Moreover, avoiding certain mistakes when opening a CD can help one reap significant returns.

Not knowing the types of CDs
Most individuals believe that all CDs levy penalties on investors in case of premature withdrawals. While the standard CDs result in penalties for early withdrawals, some other ones, called no-penalty CDs, do not charge penalties if investors withdraw from the account before completion of the lock-in period. Moreover, the lock-in period for these no-penalty CDs is usually no longer than one year. However, it is important to check the differences in interest rates between standard and no-penalty CDs and opt for one accordingly.

Withdrawing prematurely
Withdrawing one’s funds prematurely from standard CDs can prevent one from reaping the benefits of lucrative returns in the long run. For instance, in many cases, one may be charged three months’ worth of interest in case of withdrawal before completion of one year. Repeated premature withdrawals can significantly reduce the returns one derives from the CD, affecting one’s investment objectives.

Not exploring different financial institutions
A common mistake while investing in CDs is to opt for the first option one comes across. Not checking out the CDs offered by different banks and credit unions can cause one to miss out on higher returns and shorter lock-in periods. Therefore, it is important to devote sufficient time and effort to explore the CDs offered by different banks, non-banking financial institutions, and credit unions and compare the interest rates and lock-in periods of each CD before making an investment decision.

Not reinvesting returns or not renewing CDs
One’s savings cannot grow considerably unless one reinvests CD returns in another lucrative investment avenue or renews the existing CD upon maturity. Returns from CDs can substantially increase when the interest is reinvested after a period of time, when sufficient funds have accumulated.

Opening a checking account before a CD
Some banks and credit unions may require one to open a checking account before opting for a CD. However, one may incur additional expenses by opening this checking account, which can prevent one from making the most of CD returns. So, if a bank necessitates opening a checking account before issuing a CD, one must ensure to consider the costs involved to gauge if it is a logical decision.

Opening a CD for short-term liquidity
While CDs are low-risk and secure investment options, they may not offer as much short-term liquidity as some other investment avenues. So, it is important to invest in some other security alongside a CD if one is looking to liquidate funds as and when required.

Investing in a CD in the face of inflation
Investing one’s money in a CD in the face of inflation can be a bad idea, as it can prevent one from reaping higher returns. Thus, in case of inflation, it is a wiser option to wait until the rates subside again before investing in CDs.

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Top automated investing services that make investment easy for all

Automated investing services or Robo advisors are becoming popular by the day, and financial experts around the world only expect to see a surge in their usage. This is because these intelligent services offer one crucial advantage that many investors benefit from: low-cost financial advice. With many top financial services companies jumping in the race to provide customers with the best automated investing services, there are plenty of great options available for every kind of investor.What is a Robo advisor and how much does it cost?A Robo advisor is a digital platform that provides algorithmic-driven money management services that require virtually no human supervision. It does this by collecting client data like financial situation, future goals, and other details through an online survey. This data is then used to automatically manage clients' assets and provide them with the most suitable financial advice. Robo advisors are immensely cheaper than human financial advisors. Most services only charge an annual management fee that is anywhere between 0.25% and 0.5% of the account balance. Depending on your need, you can even find good Robo advisors that offer services free of charge and low minimum balance value. Top Robo advisors in the marketThere are several low-cost Robo advisors that you can choose based on your needs and preferences. Here are some of the best automated investing services or Robo advisors available in the market today.BettermentBetterment is one of the oldest and the most popular players in the industry. It allows clients to invest in a range of funds chosen for you to improve returns. It offers automatic rebalancing, tax-loss harvesting, a personalized retirement plan, and can even sync your outside holdings like bank accounts and any other investments. At extra cost, you can up your investing game by talking to a certified financial advisor on the phone.Management fee: 0.25%Account minimum: $0https://www.betterment.com/investing/SoFI InvestA go-to choice for student loan refinancing, SoFi has now expanded its services into automated investing with its user-friendly investment management system. The company provides goal-based planning, automatic rebalancing, and diversifies your money to help reach your financial goals. Plus, you’ll receive member benefits like career services, discounts on SoFi products, and the opportunity to speak to a human advisor—everything at zero cost. Management fee: noneAccount minimum: $1https://www.sofi.com/invest/automated/WealthfrontWealthfront is one of the largest automated investing companies that offer both short and long-term financial goal planning. Its software builds a diversified portfolio of low-cost index funds to improve your returns and offers time-tested investment strategies that automatically look for profitable opportunities. Management fee: 0.25 percentAccount minimum: $500https://www.wealthfront.com/Charles Schwab Intelligent PortfoliosCharles Schwab is one of the most trusted financial services companies that launched its own Robo advisor that helps build, monitors, rebalances a diversified portfolio based on your goals, and provides 24/7 customer support from US-based service professionals. With Schwab, you are not charged any advisory fee or commission and can invest in a portfolio of low-cost exchange-traded funds (ETFs).Management fee: noneAccount minimum: $5,000https://intelligent.schwab.com/

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