Low Risk, Low Return

Currently reading The Basics of Investing

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Low Risk, Low Return – Basics of Investing | Investment Options

You have the option to lend a bank your money for a specific time period (up to five years usually).

In return, you will receive a set amount of annual interest on that loan. When the contract reaches its maturity date, you get all your money back. The interest earned n this is key, that is where your investment has paid off. This depends on a number of factors – which bank you choose to use, the prevailing interest rate environment, how much money you have invested and the time period you choose to lock it up for. Your local bank most certainly sells CDs, but always check if the rates are competitive.

When buying a CD, there are two things you need to keep in mind: annual percentage yield (APY) and annual percentage rate (APR). The yield is the interest amount in total you will earn over one year. It's usually expressed as a percentage of what you invest and takes into account the way the specific bank you have chosen compounds interest. The rate is the interest rate you will earn for that year.

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