Investing 101

Investing is setting aside some money and letting it translate to great returns in the future. In the words of the guru investor, Warren Buffet, investing is laying out money presently so you can receive more of it in the future. The aim of investing is to place your money in investment vehicles that will eventually increase your money. IRAs and CDs are a good way to reap the benefits of investing. Here is a look at what IRAs and CDs are and how they work:

IRAs and Their Benefits

IRA stands for Individual Retirement Account. This is an account that is set up to allow a person to save for retirement. Growth through IRAs is tax-free and happens on a tax-deferred basis.  Experts estimate that 85% of a person’s pre-retirement income comes in handy during retirement. Employer-sponsored savings plans like 401(k) might be insufficient to achieve significant savings. This is where an IRA can help you achieve your savings goals.

An IRA can help you exploit potential tax-free growth or tax-deferred growth. You also  get access to a wider range of investment decisions than what is included in an employer-sponsored plan. IRAs supplement the savings offered by an employer-sponsored retirement arrangement.

CDs and Their Benefits

CD stands for Certificate of Deposit. This is another product that is offered by credit unions and banks. CDs offer interest rate premiums to customers who agree to pay a lump sum deposit. The deposit remains untouched for an extended period of time. Many financial institutions offer CDs, although each bank has its own CD terms, rates, and penalties for early withdrawal.

Opening a Certificate of Deposit is like opening a bank account. The difference is the conditions that are involved. Therefore, you need to look into the interest rates, the terms, the principal requirements, and the institution (bank or credit union).

One benefit of a Certificate of Deposit is that one can get a fixed interest rate for the entire life of their product. Another benefit is that CDs are, unlike stocks where you can gain or lose a fortune, money deposited into a CD can grow predictably.

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