2. “How to Manage and Remove Late Payments from Your Credit Report”

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Understanding Certificates of Deposit (CDs)

What is a CD?

A Certificate of Deposit (CD) is a type of savings account that offers a fixed interest rate over a specified term. When the term ends, you receive your initial deposit plus the accrued interest. CDs typically offer higher interest rates than traditional savings accounts, making them an attractive option for growing your savings. However, early withdrawals usually incur penalties.

How Does a CD Work?

CDs are available through banks, credit unions, and brokerage firms. They generally offer a higher Annual Percentage Yield (APY) compared to regular savings accounts. Here are some key terms to understand:

• Term: The duration for which your money is locked in the CD, ranging from one month to 10 years.
• Maturity Date: The date when the CD term ends.
• Interest Rate: The rate at which your deposit earns interest.
• Compounding: The frequency at which interest is added to your principal.
• Opening Deposit: The initial amount you need to invest in a CD.
• Early Withdrawal Penalty: The fee for withdrawing money before the CD matures.
• Interest Rate Risk: The risk of missing out on higher interest rates if they rise after you’ve locked in your CD.

Pros and Cons of CDs

Pros

• Safety: CDs are considered low-risk investments with guaranteed returns.
• Higher Interest Rates: Typically offer better rates than regular savings accounts.
• Portfolio Diversification: Can help balance your investment portfolio.

Cons

• Limited Liquidity: Funds are locked in until the CD matures.
• Modest Returns: Returns may be lower compared to high-risk investments.
• Minimum Deposits: Some CDs require a significant initial investment.

How Much Interest Will I Earn?

Interest rates on CDs can vary. As of August 2024, some APYs were as high as 5.65%. The interest you earn depends on the rate, term length, and your initial investment. For example, a $10,000 investment in a CD with a 5.00% APY for 12 months would earn $500 in interest.

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