BANKING AFFAIRS

Detailed explanation-1: -CD has limited liquidity as withdrawal of any amount which is parked for a preferred duration is only possible by paying a penalty. If an investor fails to decide what to do with the matured amount, CD rates would be renewed by the banks which can sometimes be lesser.

Detailed explanation-2: -Limited liquidity One major drawback of a CD is that account holders can’t easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.

Detailed explanation-3: -Are CDs liquid investments? Traditional CDs are not liquid investments. This means, funds held in a CD cannot be accessed until the account term is reached. If you need to withdraw money from your CD prior to its maturity date, you will have to pay a penalty.

Detailed explanation-4: -A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year, or five years, and in exchange, the issuing bank pays interest. When you cash in or redeem your CD, you receive the money you originally invested plus any interest.

Detailed explanation-5: -Key Takeaways A CD requires you to invest your money for a predetermined time period in exchange for a fixed return of interest. You usually can’t remove your funds from a CD before the date of maturity, which makes them less liquid than traditional savings accounts.