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Liquid CD's Overview

All of the CD's come with a maturity date, which if not met can cause the investor to pay penalty fee for the early withdrawal. However, liquid CD's allow investors to take their money away earlier without incurring any penalties. The interest paid on such CD's is usually more than the one stated by the money market rate of the bank. However, it is lower than the traditional CD that has the same minimum and term.

The conditions and terms vary from one bank to another. It is up to the particular bank to decide on how to regulate the CD's it issues.

Some banks will provide you with the opportunity to make two withdrawals free of penalty fee if a specific minimum amount of balance is kept. However, your rate will decrease significantly if you decide two make more than two withdrawals or your balance falls below the minimum required. The new lower rate will be applied for the remaining of the term.

This offer, however, doesn't enjoy high popularity among investors. The most commonly explanation given about this is the minimum balance that clients are required to maintain.

There are other banks that allow early withdrawals even if the balance decreases below the minimum required. However, typically the rate drops as well.

There are also many banks that include a clause, which states that an account will be closed in case of withdrawal. This means that no partial withdrawals are allowed during the term of the liquid CD in question.

When you purchase a liquid CD you should consider when you will be able to make an early withdrawal. By law you cannot make a withdrawal before seven days have not passed. Otherwise, penalty will be incurred. Thus, banks should set the first withdrawal without penalty above this time period.

You should also research beforehand how many withdrawals you can make. Make a comparison between the benefits of liquidity and the CD with no liquidity options to see whether it is worth giving away the return.

Finally, though liquid CD's have their negative traits, taken as a whole liquid CD's can be still more beneficial than savings account vehicles, due to the additional benefits they provide that allow clients to match the CD with their needs. Thus, if you have some free cash to invest for the longer term and you are looking for higher yields, CD's may be the right choice for you.

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