One of the ways to best capitalize on your savings is the Certificate of Deposit.

With a CD account you are required to lock your money for a certain predetermined amount of time, at a certain predetermined savings rate. The rate is usually higher  here than  in a regular saving accounts and it changes periodically.

CDs usually require a substantial amount to be deposited and not use. Some programs start at $10,000, others, like the jumbo CD rates, requires amounts of $100,000 and more.

The interest earned from those saving accounts can be used by the saver. It can be added to his checking account on the maturity date, or it can be mailed separately in a form of a check. It can also be rolled over into another CD of the customer’s choosing.

Banks and other financial institutions will let the customer know a few weeks before the maturity of the CD that it is about to mature and ask for instructions what to do with the money. The saver can do whatever he or she pleases after the maturity date. He or she can ask the interest to be transferred, ask for the whole sum to be withdrawn or choose another saving account. If the financial institution does not hear from the customer they will roll all the money (principal and interest) to another certificate of deposit with terms similar to the ones that have just matured.

This is not always the best way to maximize the earning potential of your saving. New CD plans are introduced frequently, long term ( up to 5 years) and short term (as little as 3 months). Interest rates are different for each of the plans, usually higher the longer the money will have to stay, unused, in the account.

To maximize the earning potential, experts recommend to use the CD ladder strategy. This way, different sums of money are put in different certificate of deposit plans, long and short term, instead of one sum in one account.

The reason behind this strategy become clear when you think about the penalties for early withdrawal associated with this kind of account. Money matures (opens up) at different times, so there is always cash available when needed. It also enables the saver to take advantage of new, higher yielding interest rates.

All CD accounts come with stiff penalties if the money is withdrawn before the maturity date. The Truth in Saving Regulation Act instructs that the penalties will be clearly stated and the interest rates can and will not change during the life of the plan. Sometimes, when there are drastic changes in the market, it can be beneficial to pay the penalty for early withdrawal and transfer the money to a new, higher interest yielding certificate of deposit.

Saving money in CD accounts is one of the safest saving plans in the market. The money is solid and will always increase in value. If planned correctly it may be one of the best money makers in the market as well.