Income Beginner: Introduction to Certificates of Deposit (CDs)

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1.
The length of time for which a certificate of deposit stays in the financial institution contributes to the size of its interest or dividend rate.
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True. Length of time is one factor among many that determine interest or dividend rates.
2.
Financial institutions are allowed to compound certificate rates as they wish.
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True. They may compound rates daily, weekly, or monthly.
3.
Why are negotiable CDs called negotiable?
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Investors can negotiate the interest/dividend rates. Although investors can negotiate numerous properties of these CDs, the name comes from the privilege of negotiating the interest/dividend rates.
4.
If you withdraw your money from a certificate of deposit before the maturity date, you will typically be penalized three to six months interest/dividends.
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True. On the average, the penalty is three to six months worth of earnings.
5.
If you want to increase the deposit on your CD periodically, you can do so by buying _________.
Choose wisely. There is only one correct answer.
An add-on CD. With an add-on CD, you can add funds throughout the life of the CD.