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Common Cents departments
Jan/Feb 2010 Issue

Get the answers to FAQs on CDs

Certificates of Deposit (CDs), once the dependable-but-dull component of most investors’ portfolios, now are a hot topic of conversation between financial planners and their clients.

CDs became a safe harbor during the recent market turmoil by virtue of the reliability that once made them staid. As investors stampeded into treasuries for protection–and drove down yields on even 30-year Treasury notes (or bonds), others discovered they could suddenly earn higher returns on CDs. Buy a CD now and you’ll lock in a great rate with the confidence of knowing your investment is protected.

HOW CDs WORK

Low-risk investments bought through a bank or thrift institution, CDs are great for money you do not intend to use for a specified length of time–six, nine or 12 months–perhaps longer. Investors receive a fixed return, and the deposit is insured by the Federal Deposit Insurance Corporation (FDIC).

Unlike stocks or mutual funds, a brokerage account is not needed to purchase a CD. However, substantial penalties are levied for taking out assets before the CD’s maturity date.

What you should know

Familiarize yourself with all rules that govern a CD; terms can vary substantially from bank to bank. It is essential you read the fine print to understand the terms.

For more information about AAA’s Deposit Program, visit www.AAA.com /Deposits or call (888) 728-3151.

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