“`html

Understanding Certificates of Deposit (CDs) with O1ne Mortgage

As interest rates on certificates of deposit (CDs) rise, these accounts are becoming increasingly attractive to investors seeking stable and predictable returns. But what are the risks associated with opening a CD? Can you ever lose money on these accounts?

How Does a CD Work?

A CD is a savings account that holds a fixed amount of money at a fixed interest rate for a fixed period of time. Here’s a breakdown:

• Fixed deposit: When you open a CD, you agree to keep your initial deposit in the account for a specified term. For example, if you open a 12-month CD with $5,000, you must keep the $5,000 in the account for the entire year.
• Fixed interest rate: Unlike traditional savings accounts, the annual percentage yield (APY) on a CD remains constant. Although variable-rate CDs and bump-up CDs (which allow you to adjust your rate once during the term) exist, they are less common.
• Fixed term: CDs come with a fixed term, typically ranging from three months to five or ten years. When your CD reaches its maturity date, your account dissolves, and you must reinvest the funds or roll them over into a new CD. Some CDs automatically renew.

Your deposits are insured up to $250,000 at FDIC-insured banks or NCUA-backed credit unions. However, CDs purchased through brokerage houses or other non-bank entities may not be federally insured, so it’s essential to verify before opening an account.

What Is a CD Early Withdrawal Penalty?

If you need to withdraw money from your CD before its maturity date, you will incur an early withdrawal penalty, which is outlined in your CD’s deposit agreement. A typical penalty might be 90 days of interest on a six-month CD or 365 days of interest on a three-year CD.

The penalty could be limited to the interest earned, but if not, it might affect your principal balance. For instance, if you withdraw from a six-month CD with a 90-day penalty after only 30 days, you may have to pay the difference from your principal if your deposit agreement does not limit the penalty to the interest earned.

How to Maximize Savings With a CD

Choosing the right CD involves finding the best interest rate and the most suitable term for your needs. Here are some tips:

• Compare CDs from multiple banks and credit unions to find the best APY.
• Select a term you can commit to, ensuring you can leave your money in the CD for its full term to avoid early withdrawal penalties.
• Consider laddering your CDs by opening multiple CDs with different maturity dates to avoid having all your money locked up at once.
• Understand your alternatives, such as high-yield savings or money market accounts, or other investments that may offer higher returns.
• Read the fine print to fully understand early withdrawal penalties, grace periods, automatic renewals, and other details.

The Bottom Line

CDs can provide stability and predictability to your savings and investment portfolio. With a CD, you typically know exactly how much interest you’ll earn and for how long, with minimal risk of losing your investment.

However, in exchange for this predictability, you agree to keep your money in the CD for the duration of the term. To ensure this strategy aligns with your financial goals, consider consulting a financial advisor or reviewing your portfolio. Understanding how CDs fit into your overall financial picture can help you decide if they are the right choice for you.

For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. Our team is here to assist you with confidence and expertise.

“`