Certificate of Deposit

Archive for April, 2009

Question: Could someone explain Certificates of Deposits (CD) better for me?

On Bank Of America’s website it says 36 month CD 1.75% (btw is that 1.75% compounded every month or does that mean if I put in a 1000 after 3 years I’ll have $1750 -_- and why is the high yield a smaller percentage than the CD of 36 month) ..

http://www.bankofamerica.com/deposits/checksave/index.cfm?template=save_overview#2

I just turned 18 and I want to open a bank account and save money, any tips?

Answer: The 1.75% is an annual rate, which means if you deposit $1000, after year one you will have $1017.50
After year two you will have $1035.
Year 3 you’ll have $1052.50

“why is the high yield a smaller percentage than the CD of 36 month) ..”

Because it is a shorter term note – 1 year vs 3 years.

The web page does not specify if they compound interest on a monthly basis, but it is likely with these CD’s that they do not.

Question: Can I take out a 25,000 CD?

Or is it a limit of how much and how long you can keep the Certificate Of Deposit open?

I really want to do this because I have a horrible time saving money and if I have a penalty i think i wont take it out. but do i continue putting in money and how much would be minimum.

Im 23 trying to save more money. thanks.Also is the interest rates good in illinois banks to take out cd’s? how good are they over time?

Answer: Many banks and credit unions offer different CD products, just check around and see if you find one that meets your needs. Some places don’t let you add to them, others do. Some places make you open a checking account or a savings account along with the CD, so be sure to read fine print when you see a good advertised rate, also check that it’s a fixed rate and not subject to change once you lock it into a CD, and also find out about penalties, they are different everywhere, some penalties even take into your principal deposit if you withdraw too soon. So like I said, check around and be sure to read fine print!!

Andrew Bird – The Giant Of Illinois – (28 of 31)

Question: How are taxes done when laddering Certificates of Deposit?

Lets say I have $70,000 dollars to invest, and I invest $10,000 into a 1 year CD, 2 year CD, 3 year CD, etc…etc all the way up to a 7 year CD. Now I know already that you have to pay taxes on interest from a CD as it is counted towards earned income. If my CD’s are set to credit the interest earned every month to the CD’s balance am I paying taxes on all 7 CD’s every year or do I only pay taxes for the CD that matures that year.

In other words, after the end of the first year, will I only have to pay taxes on the interest from the 1 year CD, or will I have to pay the taxes on all the interest earned in that first year from all 7 CD’s

Answer: Interest is taxed as it is accrued and added to the account, not when you withdraw it.

So at the end of the year, your financial institution will send you a 1099-INT for all interest accrued by all seven CD’s for the year.

CD Laddering