Certificates of Deposit (CDs) are a popular form of financial investments these days because they are considered to be more safe than many other types of savings and investments. It's important to have a good understanding of this type of investment to protect your financial safety and wealth. It's also important for you to ask questions of the bank. Disclaimer: This info and the tips are not intended to be comprehensive...that would take a book.

What You Want to Understand
1. Certificates of Deposit at banks are insured up to $250,000 by the FDIC government agency. Know that the government has a very small percentage placed in reserve to fund these losses. The government reserve fund was only 1 to 2% of the total dollars invested in CDs, last time I checked. And it's likely no more than that these days. Other agencies like brokerage houses, may be insured in other ways, like SIPC.

Policy: Make sure you limit your investment in each bank to maximum of $250,000, to have the best protection. Verify if the $250,000 is per person or per family or corporate entity.

2. CDs offer many choices for your investment dollars:
Varying lengths of time (3 months to 5 years) until maturity, each term with a different interest rate.

Each bank will have different CD choices, so you likely need to contact them to see where you get the best rates, terms and other factors to meet your needs.

These days banks (and also other investment entities like credit unions) offer special deals to attract investment capital for their coffers, hopefully to lend to businesses, home owners and others. These specials yield the best results many times in interest rates and terms.

3. Find out about potential penalties and fees.

Are there any penalties and fees or fines, if you need to withdraw some of the money from the CD before it matures? This is very important because you want the money earning interest every day, however an emergency can arise that requires you to make a partial withdrawal of the principal of the CD and you want to know what that would cost you in real dollars.

What are the penalties and fees? Here's what I found, I'll use an example of $20,000 CD. Each bank varies, so I called banks for the information. The 2 scenarios illustrate

Bank 1: Any partial withdrawal before the maturity date of the CD results in a 3 month, 6-month or 1 year penalty, depending upon the term of the CD (12 month to 5-years). The penalty: your interest earnings on the entire $20k CD for the 3, 6, or 12 months penalty period are taken away, for taking out any principal amount, even $1,000 or whatever small amount. That's a huge loss.

Bank 2: Partial withdrawals (may be a limit to 1 or 2) are allowed, with a penalty for the early withdrawal. Penalty: of 3 or 6 months only on the partial amount withdrawn. The rest continues to earn interest until the CD matures, and at the rate in the original CD document. Nice.

Most banks will automatically roll over the CD to another like-term CD if you do not redeem it within 10 days or so after it matures. You should get a notice in the mail a week or two before the maturity date, but don't rely on that. Keep track of maturity dates yourself to insure you know what's going on.

4. Ask questions and make requests of the bank in situations where errors or misunderstandings occur with CDs or other bank transactions.

When a CD has automatically rolled over in error or even if you just forgot, but you don't want it rolled over with the original terms and the new current interest rate. Ask the bank to make a special exception to reverse the rollover. Also request they include the interest earned on the new CD. A courteous and respectful, occasional request for a valid reason works. I've done this a couple times over many years.

There are other examples. The point is this: take an active role in your finances, manage them, ask questions until you understand situations. The bank and all financial agencies are there to serve you - within ethical, honest, and legal parameters.

5. CD Investments on the Internet.

Be cautious with investing on the internet in CDs or any other investments. During this economic downturn people can feel desperate, so they turn to places they may see higher interest rates. The scams and frauds are higher during these times. My recommendation is to stay away from the internet for your investments now, unless you are very familiar with the source, have used them previously, and believe you can trust them.

Protect your wealth, manage your wealth wisely. Your future is in your hands!