Many checking accounts and savings accounts provide very little interest, or even no interest at all. This means your money is just sitting in an account not working for you.

A good way to have your money work for you is by investing a portion of your money in certificates of deposit (CDs). CDs will allow you to set a chunk of money aside for a certain period of time (usually at least 6 months) and receive a higher interest rate than you would receive with a checking or savings account.

Certificates of deposit work by the consumer “lending” money to the bank for a fixed period of time at a fixed or variable interest rate. Banks usually offer several different rates and time periods. As the “lending period” increases, the interest rate you will receive also increases. In addition, many times, the larger the principle investment, the higher the interest rate you receive. Some banks require a minimum deposit for certain CDs. The interest you make on the investment can be reinvested into the CD or can be distributed to you in a check at specific time intervals (monthly, quarterly, etc.).

For example, if you take $1000 and purchase a 6-month CD at a 3% interest rate that is reinvested into that CD every quarter. After the 6 months, the CD is said to have “matured” and you can collect your principle and your interest. If you do not collect your money by a certain time, the bank may automatically put your money into another CD at whatever the current interest rate is.

CDs are virtually risk-free and are insured by the FDIC or the NCUA. They are also fairly liquid as you are able to convert your CD to cash even before the CD matures, although there may be a substantial monetary penalty for doing so.