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The biggest mistake Indians do is we consider Insurance as an Investment. When I say Insurance it means Endowment policies, ULIP, Whole Life Participating policies, etc.You should never ever ever ever consider Insurance as an Investment.Grab a cup of coffee, this answer is long, a real story and an eye opener for you.This is an incident which happened in June 2012, one of my colleague Mr. Ronad, we both were working in the same organisation and in one of our conversation during lunch he mentioned to me,“You know Vipul, I have purchased LIC Jeevan Anand policy of 20 lakhs and agent told me that after 20 years the amount would be 45 Lakhs rupees.”(By the way I call LIC agent as “Messiah”, that’s how you treat them)I did some calculation on the fly and informed him that,“It will not give you more than 6% returns which means that instead your wealth being appreciated, it is depreciating day by day and secondly forget about the returns you have constantly kept your family under danger.”Below Image represents the returns of Jeevan Anand policy.If you look at the returns of Jeevan Anand (It could be any traditional policy) it is a mere 6% and in past several years inflation was more than 6%. Which means your wealth is depreciating instead of appreciating.His second question was “How is my family under constant danger in-spite of Insurance?”I explained to him that imagine if something unfortunate happens to you, your wife will receive 20 Lakhs and so-called bonuses of another 5 Lakhs from LIC.That is rupees 25 lakhs.Now your wife doesn't understand investment so what she is going to do, she is going to keep these money into fixed deposit.I am talking about 2012 when interest rate were around 8%.Considering this scenario his wife will receive rupees 2 lakh on 25 Lakhs of Sum insured at 8%.i.e 25 Lakhs * 8% = Rs 2 Lakhs.“If you divide this 2 Lakhs by 12 months that is 16,666 rupees per month.Can your wife survive with Rs 16,666 for her life expectancy of 75 or 80 yrs of age?Can your wife carry household expenses + Children education expenses with Rs 16,666?”His answer was a big “NO” (I am sure your answer will also be a NO).He asked me for a solution.“The base minimum insurance required is your yearly salary multiply by 100 divided by the current interest rate.”His salary was 15 Lakhs per annum which means 1500000 x 100 / 8 percentage i.e Rs 1.87 Cr.But while doing financial planning all worst case scenarios have to be considered.Interest in 2012 were around 8%, considering a what if scenario I told him what if tomorrow the interest rate comes down to 6%. (Now the interest rate is at 6%)I replaced 8% with 6% and the Insurance amount required to him was 2.5 crore.Again the same formula (15 Lakhs x 100 / 6%).It was suggested to him to purchase a term insurance of Rs 2.5 Crore.We had a scheduled meeting because of which we could not continue our conversation.Next day, he told me, Vipul instead of 2.5 Cr I have purchased an insurance or 1.5 Cr.I forcefully told him to purchase another 1 Cr of insurance because 2.5 crore was the base minimum insurance required to him.Because we had not factored in inflation for child education, tax component from the proceeds of insurance amount, etc. etc.He did not listen to me and as usual, Indian typical mentality “Kya Hoga Yaar kuch bhi to nahi hoga” (Nothing will happen)In Sep 2014, my phone rang and I received the news that my same friend died in a swimming pool.It was a shocking news to me.I could not believe what I heard because he was a good swimmer.A person who used to wake up at 5.00 in the morning, regularly used to do yoga, walking and occasionally swimming. How could he die?He was just 38, in fact that’s the age to live the life at fullest.I along with my other office colleagues reached at swimming pool, police was also present.Police took his body for Post-Mortem at Bhagwati Hospital in Borivali,Mumbai.I bet you will not be able to stay in post morterm room for more than 30 seconds, They cut the body like we cut a banana. It was terrible.We received his dead body after few hours and cremated as per Hindu rituals.His family kept a prayer after 13 days. I wanted to speak to his wife about Rs 1.5 Cr Insurance.I didn’t had the courage to ask his wife, I mean how could you ask a woman whose husband died just 13 days ago.I gathered some courage and finally asked her about the term insurance of Ronad.To my surprise, she was completely unaware of this insurance policy.I knew Ronad’s email and the insurance company from where he purchased the term insurance.The challenge was as he died even the password died along with him, we recovered Yahoo email password through OTP stuff and finally the policy details.Claim was filed while providing all the papers related to death which included panchnama, death certificate, post mortem report, etc, etc.His wife received Rs 1.5 Crore cheque after few days and that was the day I realized the power of insurance.After this incident, half of the office staffs came to me for insurance planning because they saw what happened.This incident made me realize that such a casual advice saved a life of a widow, she will not have to beg in front of anyone, anymore. Imagine the scenario where she would have received Rs 25 Lakhs from LIC. (Can’t even think of it)That was the day I started spreading awareness towards financial literacy. It gave me a goal in my life. (Majority of you don’t even know why you are living this life)My mission is now to educate 1 Crore Indians towards financial literacy for which I started blogging, webinars, conducting seminar in society.There are few societies which pay for tea, coffee and chairs while some don’t. Those who don’t, I pay from my own pocket.What I learned and you should learn from this incident,a) Messiah, be it LIC agent or any other Insurance company agent are behind their premium not behind your family security(Exceptions are always there).b) Insurance is not an investment at all. Don’t do this wealth destroying mistake.c) Do buy term insurance and secure your family in case of an unfortunate event.d) All your bank details, Insurance details, Shares, Mutual Funds, email along with passwords should be known to 2–3 family members.Why 2–3 family members, there are cases where entire family dies in a car crash.My fight is against of Lakhs of messiah in India, I don’t know by which date I would be able to achieve my mission but I will continue my fight…..I would like to end this answer with famous quote of Mahatma Gandhi“First they will ignore you,then they will laugh at you,then they will fight at you,then finally you WIN”God Bless youRegardsVipul ShahIn case if you are looking for a life goal planner whom you can rely and trust,(more details in profile)Edits : I sincerely thank you all your response to this answer.Many readers have raised questions and I have tried my level best to answer their queryNagendra YadavYour formulae seems to be incorrect. What if interest rate is 1%, say as in US, you suggest 100 times the annual income? At 2%, 50 times? One typically starts around 25 and retire around 60… so anything more than 30 looks like un-necessary. Also lower the interest rate lower the inflation and lower the expenditure… and vice versa… so having interest rate in denominator is flawed.Ans : I respect your opinionIf the interest rate is 1% then it should be 100% because then only family will have the income in case of death of an earning member.Further to your query,Insurance can be calculated in two different methods1) Income replacement method and2) Expense replacement methodDetailed calculation is almost impossible to explain here.Anshum AgarwalI also bought one LIC policy similar to above. I paid 5 quarterly premium of around 40 thousand each. After that I realized about this and I stopped it. Then I bought term insurance.One question I have is, can I get that LIC money back?Ans : If the premium paid is in 1st year, entire premium is goneIf premium paid is uptill 3 years, you will recieve 30% of premium paidIf it is more than 3 years please contact the Messiah you sold you the policy for surrender value.Hiren KathrotiyaOne of my friends father dead with high term insurance policy, he still not get the claim amount because company is making different different excuses.Ans : Most of the claims are rejected because people do not tell the truth while purchasing the policyFor Example : If you are a smoker and if you hide it from an Insurance company just for the sake of saving few bucks in premium, your family will have to bear the consequencesYou also need to reveal existing policy details to both the insurance companiesFor Example : If you are having 1 Cr policy for XYZ company and you want to purchase another 1 crore from ABC company.Then inform ABC that you an insurance from XYZ company, after policy is issued by ABC, inform XYZ also.You can visit insurance samadhan (search in google). It is an insurance Grievance redressal platform.They charge only Rs 500/- and will not charge you till you win the case.It is run by Mr Shailesh who worked in Insurance sector for more than 2 decades.Disclaimer : I am no where associated with this company.Alisha SpecterGreat Job, if you need help with spaces for free, do let me know, a friend of mine has some cafe listings.Ans : Thanks for the help, will get in touch with in case of any requirementNaman AryaDon't buy it from any one. Chances are the guy who has written the answer will charge commissions. Go to websites of ICICI Pru or Max Life Insurance and buy an Online Policy. SimpleAns : It seems you are calling me out, I am not an insurance agentIndeed I am a fee only financial planner which means I get paid for my financial advisory fee from individuals like you to recommend you the right product.Since I am not associated with any commissions and only concerned with my fees I give unbiased opinion so that we both remain on same page.Majority of you have asked How to buy term insurance, where should I buy term insurance, What should be the max age to buy?What should be the max age to buy?Insurance should be purchased till the time you are going to earn.If you will earn till 60, purchased till 60 years of age.There is no economic value after 60 years because in an unfortunate death your family's income will not be impacted.Where and How to buy term insurance?Go to insurance aggregator websites likes coverfox or policybazar.Select the sum insured, insurance company, check the quote,compare it with insurance companies website.Where ever premium is low go ahead and buy. Am I right Naman Arya?Aritrim BasuIf you need a website, just connect with me, and I will provide you one free of cost. It is high time that people know, LIC is a nationwide scam.Ans : Thanks Aritrim for the help indeed my website would be up in few days.Pooja TripathiCan you share the details of Policy your friend purchased?Ans : I do not want to share the details here in public forum as I do not want to be biased.I have already mentioned how and where to buy insurance from.Any particular term insurance plan that you recommend?It does not matter which Insurance company term insurance you purchase, go with plain vanilla term insurance and do not hide anything from Insurance company.Ashish KapoorCan you share the cheque photo to me or any proof of 1.5 core rupees credited?Ans : Would you give me access to your bank account?No, RightI didn’t knew one day I will post this incident on Quora else I would have taken a photocopy for youI do not know the rationale behind asking your question but I would like to say"I got a goal in my life, left my six figure salary job , pay from my own pocket in society seminar"Such kind of motivation can't happen in fake stories bro!!!Geetesh GeeteshBut I would disagree with the statement that :“The base minimum insurance required is your yearly salary multiply by 100 divided by the current interest rate.”Because salary of the demised person can't be the criteria to judge the requirement of dependents. For eg. Say in Mumbai, Person X earns 15 lakhs per annum whereas other person say Y earns 5 lakhs per annum, than how could we say that minimum amount for spouse of X should be 1.5 cr wheteas for that of Y shoild be 0.5 cr. (considering both families live in same locality)Please shower further light on same.Ans : Please refer to reply provided to Nagendra YadavVikram OzaI wanted to understand the calculation in the image which cot my attention..FAB70 per 1000, FAB (70*200000)/1000 equals 4,20,000 for a yearAnd for 20years, 4,20,000*20 = 84,00,000I surely think am missing something, could you please help point.Ans : Final Bonus calculation as followSum Insured 20 Lakhs i.e 2000 (Thousand)Final Bonus by LIC is 70 Rs per Thousand which means 70 X 2000 = 140000I hope it is clear nowMegharaj SheelvahtWell when reading this answer I was not having coffee but a bottle of beer. Thanks for the answer/knowledge sir.Ans : Cheers!!!Avdhesh JhaIt's a copied answer of pramod kumarAns : Ask pramod kumarWhat was my friend's full name?In which swimming pool did he died and in which area?Which was the police station involved?Where did he used to reside in Mumbai?Where did his body cremation took place?What was his mother tounge?In which company was his working when this incident took place?Which was the insurance company from which he took Insurance?What is his wife's name?How many daughter/son he had and what were their name?We were two people engaged in Insurance claim, One was sitting at my friend’s home and another was at Insurance company, Ask pramod kumar to give the name of two people.It is a real story happened to me and I lost my colleague and a good friend,It is easy for pramod to copy but he can't feel the pain.Ankur SharmaHow can I contact you?Ans : Details are in my profileBarun GhoshAre you an insurance agent ?I don't know why , but I feel like you're hired to write this beautiful answer, which encourages readers to invest even more on insurances.Ans : I am not an Insurance agent and as far as writing is concerned, I wrote what happened in realityChanchal GuptaI agree with u on investment numbers… but, can u swear that the above story is true??Ans : Please refer to answer provided to Ashish Kapoor, Avdhesh Jha and Barun GhoshVivek ChadhaU r tarnishing name of LIC….ULIP was sold by private companies and exuberant charges cheated people…after that Irda introduced strict terms for ULIP…LIC has highest claim ratio and it's major income comes from core business only…and after decreasing market share..it's again commands 70% of market share….don't bad mouth such a strong brand…Ans : 70% Market share doesn't mean it is a good brand, 70% market is because globalization in Insurance took place later compared to 1991 globalization policy introduce by the then finance minister Dr. Manmohan SinghI am not against LIC, I am against the Messiah who give the wrong advice for their premiumI showed the truth, If it bitter for insurance agents let it be.Nikhil PagarVipul, one genuine question.What if inspite of paying all premiums on my term insurance (e.g 5 Cr which is a huge amount) , after my death , the insurance company plays dirty tricks with my family behind me ?Secondly after all this chaos of financial institutions in India (recent ones are PNB & ICICI ) , it is very difficult to trust these private institutions, in this case insurance companies whose sole purpose is to earn money. How I am suppose to trust them ? Honestly my confidence is low in India's financial system.(I completely agree with your theory here but the only thing I want to clear is the risk associated with term insurance in these pvt companies. LIC has term insurance of its own but the premiums are expensive. People buy LIC insurances because they are risk-free similar to FDs and its easy to claim the insurance money whereas I am not sure of these pvt insurance companies).Ans : When you sign on the dotted line of insurance paper it is now a contract between you and Insurance company.Most of the claims are rejected because insured person lie to Insurance company.For example : A person is a smoker and does not reveals to save few bucks on premium. Result is Insurance company got a chance to deny the claim.It is been said never hide anything from Lawyer and Doctor, one more added here is Insurance CompanyBelow are few most upvoted answers on Quora related to Insurance, Mutual Funds, Options trading and Investor Phycology.I am sure you will like it and will surely help in taking better informed financial decisionsInvestor Phycology answersDo you chase high returns mutual funds, get ready for worst impact in your portfolio?-What are the most common mistakes of Investors? 1014 UpvoteWhat are the risk associated in mutual funds?Random Answers for better financial decisionWhy Mid & Small Cap will create enormous wealth for investorsHow mutual funds house fooled you? and correct way to select a mutual fund - Analysis and review of Mirae Asset Emerging Bluechip FundIs it better to prepay home loan or invest in SIP of Mutual Funds? - 300 UpvoteWhich is the best mutual funds to invest in India?Are you invested in large AUM mutual funds, get ready for underperformance.How to do detail retirement planning? - 250 UpvoteWhy gold is a useless investment? 300 UpvoteWhy you should not opt for dividend mutual funds?Why Robo Advisor will suck your financial life?How you can generate 1% monthly income from options tradingWhy people hire financial planners?

A certificate of deposit (CD) is a product offered by banks and credit unions that offers an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Almost all consumer financial institutions offer them, although it’s up to each bank which CD terms it wants to offer, how much higher the rate will be vs. the bank’s savings and money market products, and what penalties it applies for early withdrawal.Shopping around is crucial to finding the best CD rates because different financial institutions offer a surprisingly wide range. Your brick-and-mortar bank might pay a pittance on even long-term CDs, for example, while an online bank or local credit union might pay three to five times the national average. Meanwhile, some of the best rates come from special promotions, occasionally with unusual durations such as 13 or 21 months, rather than the more common terms based on 3, 6, or 18 months or full-year increments.Being open to different institutions and a variety of terms is key to scoring the highest returns.KEY TAKEAWAYSTop-paying certificates of deposit pay higher interest rates than the best savings and money market accounts in exchange for leaving the funds on deposit for a fixed period of time.CDs are a safer and more conservative investment than stocks and bonds, offering lower opportunity for growth, but with a non-volatile, guaranteed rate of return.Virtually every bank, credit union, and brokerage firm offers a menu of CD options.The top nationally available CD rates are typically three to five times higher than the industry average for every term, so shopping around delivers significant gains.Although you lock into a term of duration when you open a CD, there are options for exiting early should you encounter an emergency or change of plans.How Does a CD Work?Opening a CD is very similar to opening any standard bank deposit account. The difference is what you’re agreeing to when you sign on the dotted line (even if that signature is now digital). After you’ve shopped around and identified which CD(s) you’ll open, completing the process will lock you into a four things.The interest rate: Locked rates are a positive in that they provide a clear and predictable return on your deposit over a specific time period. The bank cannot later change the rate and therefore reduce your earnings. On the flip side, a fixed return may hurt you if rates later rise substantially and you’ve lost your opportunity to take advantage of higher-paying CDs.The term: This is the length of time you agree to leave your funds deposited to avoid any penalty (e.g., 6-month CD, 1-year CD, 18-month CD, etc.) The term ends on the “maturity date,” when your CD has fully matured and you can withdraw your funds penalty-free.The principal: With the exception of some specialty CDs, this is the amount you agree to deposit when you open the CD.The institution: The bank or credit union where you open your CD will determine aspects of the agreement, such as early withdrawal penalties (EWPs) and whether your CD will be automatically reinvested if you don’t provide other instructions at the time of maturity.Once your CD is established and funded, the bank or credit union will administer it like most other deposit accounts, with either monthly or quarterly statement periods, paper or electronic statements, and usually monthly or quarterly interest payments deposited to your CD balance, where the interest will compound.Volume 75%2:01Certificate of Deposit (CD)Why Would I Open a CD?Unlike most other investments, certificates of deposit, or CDs, offer fixed, safe—and generally federally insured—interest rates that can often be higher than the rates paid by many bank accounts. And CD rates are generally higher if you’re willing to sock your money away for longer periods.As a result of the Federal Reserve’s rate hikes since 2017, CDs have become a more attractive option for savers who want to earn more than most savings, checking, or money market accounts pay, but without taking on the risk or volatility of the market.CDs vs. a Savings or Money Market AccountCertificates of deposit are a special type of savings instrument. Like a savings or money market account, they provide a way to put money away for a specific savings goal—such as the down payment on a house, a new vehicle, or a big trip—or to park funds that you simply don’t need for day-to-day expenses, all while earning a certain return on your balance.But whereas savings and money market accounts allow you to vary your balance by making additional deposits, as well as up to six withdrawals per month, CDs require one initial deposit that stays in the account until it reaches its maturity date, whether that’s six months or five years later. In return for giving up access to your funds, CDs generally pay higher interest rates than savings or money market accounts.How Are CD Rates Determined?Anyone who’s been following interest rates or business news in general knows that the Federal Reserve Board’s rate-setting actions loom large in terms of what savers can earn on their deposits. That’s because the Fed’s decisions can directly affect a bank’s costs. Here’s how it works.Every six to eight weeks, the Fed’s Federal Open Market Committee (FOMC) decides whether to raise, lower, or leave alone the federal funds rate. This rate represents the interest that banks pay to borrow money through the Fed. When Fed money is cheap (i.e., the federal funds rate is low), banks have less incentive to court deposits from consumers. But when the federal funds rate is moderate or high, banks can do better by paying consumers a competitive rate for their deposits.In December 2008, the Fed reduced its rate to the lowest level possible of essentially zero as a stimulus to lift the U.S. economy out of the Great Recession. Even worse for savers was that it left rates anchored there for a full seven years. During that time, deposit rates of all kinds—savings, money market, and CDs—tanked.Since December 2015, however, the Fed has been gradually increasing the federal funds rate, in light of metrics showing growth and strength in the U.S. economy. As a result, the interest banks are paying on deposits has been rising for more than three years, with the top CD rates now an attractive option for certain cash investments.When considering opening a CD or how long a term to choose, pay attention to the Fed’s rate-setting movements and plans. Opening a long-term CD right before a Fed rate hike can hurt your future earnings, while expectations of decreasing rates can signal a good time to lock in a long-term rate.Beyond the Fed’s action, however, the situation of each financial institution is an additional determinant of how much interest it is willing to pay on specific CDs. For instance, if a bank’s lending business is booming and an increasing amount in deposits is needed to fund those loans, the bank may be more aggressive in trying to attract deposit customers. By contrast, an exceptionally large bank with more than sufficient deposit reserves may be less interested in growing its CD portfolio and therefore offer paltry certificate rates.Are CDs Safe?Certificates of deposit are one of the safest savings or investment instruments available, for two reasons. First, their rate is fixed and guaranteed, so there is no risk that your CD’s return will be reduced or even fluctuate. What you signed up for is what you’ll get—it’s in your deposit agreement with the bank or credit union.CD investments are also protected by the same federal insurance that covers all deposit products. The FDIC provides insurance for banks and the NCUA provides insurance for credit unions. When you open a CD with an FDIC- or NCUA-insured institution, up to $250,000 of your funds on deposit with that institution are protected by the U.S. government if that institution were to fail. Bank failures are exceptionally rare these days. But it’s good to know that a bank failure won’t put your funds in jeopardy.The key to ensuring your funds are as safe as possible is to make sure you choose an institution that carries FDIC or NCUA insurance (the vast majority do, but a small minority carry private insurance instead), and to avoid exceeding $250,000 in deposits in your name at any one institution. If you are holding more than that amount in deposits, you can maximize your coverage by spreading your funds across multiple institutions and/or more than one name (e.g., your spouse).When Is Opening a CD a Good Idea?Certificates of deposit are useful in a few different situations. Perhaps you have cash you don’t need now, but will want within the next few years—maybe for a special vacation or to buy a new home, car, or boat. For near-term uses like that, the stock market generally isn’t considered a suitable investment as you could lose money over that period of time.Or maybe you simply want some portion of your savings invested very conservatively, or shun the risk and volatility of the stock and bond markets altogether. Though CDs don’t offer the growth potential of equity or debt investments, they also don’t carry a risk of downturns. For money that you want to absolutely ensure will grow in value, even if modestly, certificates of deposit can fit the bill.One of the downsides of CDs can also be a useful feature for some savers. For those who worry they won’t have the discipline to avoid tapping their savings, the fixed term of a CD—and the associated penalty for early withdrawal—provide a deterrent to spending that regular savings and money market accounts do not.One version of this is using CDs for your emergency fund. This allows you to ensure you always have sufficient reserves on hand in case of an emergency because the amount in the CD will never decrease. And though you may incur a penalty if you have to dip into your funds early, the idea is that you would only do this in a true emergency, not for lesser but tempting reasons. All the while, you’ll be earning a better return while the funds are invested than if you had deposited them in a savings or money market account.ProsOffers a higher rate than you can earn with a savings or money market accountPays a guaranteed, predictable rate of return, avoiding the volatility and losses that are possible with stocks and bondsIs federally insured if opened with an FDIC bank or NCUA credit unionCan help fend off spending temptations since withdrawing the funds early triggers a penaltyConsCannot be liquidated before maturity without incurring an early withdrawal penaltyTypically earns less than stocks and bonds can over timeEarns a fixed rate of return regardless of whether interest rates rise during the termWhere Can I Get a CD?Virtually every bank and credit union offers at least one certificate of deposit, and most have a wide array of terms on offer. So not only is your local brick-and-mortar bank an outlet, but so is every bank or credit union in your community, as well as every bank that accepts customers nationwide via the internet.In addition, you can open CDs through your brokerage account. We’ll explain more on these later, but in short, these are bank certificates as well. Your brokerage firm simply serves as a middleman.Why It’s Important to Shop AroundBefore the internet, your CD choices were essentially limited to what you could find in your community. But with the explosion of online rate shopping, plus the proliferation of internet banks—and traditional banks opening online portals—the number of CDs one can consider is astounding. It’s now possible to shop for CDs from about 150 banks that accept customers nationwide and allow for opening an account online or through the mail. In addition to that, you’ll have access to a number of regional and state banks, as well as credit unions, that will do business with you based on your residency in their state.As we’ve mentioned, though, the range of CD rates across these different institutions can vary widely. It’s a mistake to just open a CD at the bank where you already have a checking relationship without investigating how its rates compare with those you can earn elsewhere.Fortunately, our weekly rate research will put the very best nationally available rates in front of you for every term, making it easy to maximize your earnings. You should still shop for options within your state or community, but with our lists of the top nationally available rates, you’ll be able to easily determine which rates are worth your consideration and which are not.The top-paying CDs in the country typically pay three to five times the national average rate, so doing your homework on the best options is a key determinant on how much you can earn.How Much Do I Need to Open a CD?Each bank and credit union establishes a minimum deposit required to open each CD on its menu. Sometimes a bank will set a minimum deposit policy across all CD terms it offers, while some will instead offer rate tiers, providing a higher APY to those who meet higher minimum deposits.In theory, having more funds available to deposit will earn you a higher return. But in practice, this doesn’t always hold true. For instance, having $25,000 ready for deposit will occasionally enable you to open a CD that others with lesser amounts could not. But many of the Top 10 rates in each CD term can be achieved with modest investments of just $500 or $1,000. And the vast majority of top rates are available to anyone with at least $10,000. A $25,000 deposit is only occasionally required for a top rate.Which CD Term Should I Choose?There are two important considerations when deciding how long a CD term is right for you. The first centers on your plans for the money. If it’s for a specific goal or project, the expected start of that project will help you determine your maximum CD term length. In contrast, if you’re just socking away cash for which you don’t have a specific purpose in mind, you may opt for a longer term so as to maximize your interest rate.Secondly, you’ll want to consider what’s expected to happen with the Fed’s rate. If it’s anticipated that the Fed will raise rates—and therefore bank and credit union CD rates will likely rise—short- and mid-term CDs will make more sense than long-term CDs, since you won’t want to be committed to a lesser rate for five years when new, higher rates appear. Conversely, an expectation that rates will decrease in the near term may trigger you to want long-term CDs, so you can lock in today’s higher rates for years to come.What Is a CD Ladder and Why Should I Build One?Smart CD investors have a specific tactic for hedging against rate changes over time and maximizing their return. It’s called a CD ladder and it enables you to access the higher rates offered by 5-year CD terms, but with the twist that a portion of your money becomes available every year, rather than every 5 years. Here’s how to do it.At the outset, you take the amount of money you want to invest in CDs and divide it by five. You then put one-fifth of the funds into a top-earning 1-year CD, another fifth into a top 2-year CD, another into a 3-year CD, and so forth through a 5-year CD. Let’s say you have $25,000 available. That would give you five CDs of varying length, each with a value of $5,000.Then, when the first CD matures in a year, you take the resulting funds and open a top-rate 5-year CD. A year later, your initial 2-year CD will mature, and you’ll invest those funds into another 5-year CD. You continue doing this every year with whichever CD is maturing, until you end up with a portfolio of five CDs all earning 5-year APYs, but with one of them maturing every 12 months, keeping your money a bit more accessible than if all of it were locked up for a full five years.Some CD investors also do a shorter version of the CD ladder, utilizing 6-month CDs at the bottom end of the ladder and 2 or 3 year CDs at the top. Here you would have funds becoming accessible twice a year instead of just once annually, but you’d be earning top rates from 2- to 3-year CDs instead of 5-year rates.Why You Should Be Open to Odd-Term CDsWhether you’re building a CD ladder or are saving towards a specific goal with a known timeline, stay open-minded to the very best CD deals you find rather than getting hung up on a specific term. The reason this is important is that, when some banks and credit unions offer a promotional CD to attract new customers, they may stipulate an unconventional term.For instance, some of the best CD rates you’ll see have unlikely terms like 5 months, 17 months, or 21 months. It may be to stand out or, perhaps, to match the birthday the bank is celebrating, or any number of other reasons. But if you can be flexible in considering these odd-term certificates instead of the conventional term you were planning, you can sometimes find yourself with a better-paying opportunity.How Are CD Earnings Taxed?When you hold a CD, the bank will apply interest to your account at regular intervals. This is usually done either monthly or quarterly, and will show up on your statements as earned interest. Just like interest paid on a savings or money market account, it will accumulate and be reported to you in the new year as interest earned, so that you can report it as income when you file your tax return.Sometimes people get confused about this because they are not able to actually withdraw and use those interest earnings. So their expectation is that they will be taxed on the earnings when they withdraw the CD funds at maturity (or sooner if they cash out early). This is incorrect. For tax-reporting purposes, your CD earnings are taxed at the time the bank applies them to your account, regardless of when you withdraw your CD funds.What Happens to My CD at Maturity?In the month or two leading up to your CD’s maturity date, the bank or credit union will notify you of the impending end date. Its communication will also include instructions on how to tell it what to do with the maturing funds. Typically, it will offer you three options.Roll over the CD into a new CD at that bank. Generally it would be into a CD that most closely matches the term of your maturing CD. For example, if you have a 15-month certificate concluding, they would likely roll your balance into a new 1-year CD.Transfer the funds into another account at that bank. Options include a savings, checking, or money market account.Withdraw the proceeds. They can be transferred to an external bank account or mailed to you in a paper check.In any case, the communication to you will stipulate a deadline for you to provide instructions, with an indication of what the institution will do in lieu of receiving your guidance. In many cases, its default move will be to roll your proceeds into a new certificate.Missing the bank’s deadline for instructing it how to handle the proceeds of your maturing CD can lead to involuntarily locking yourself into a subpar rate for years to come, or incurring an unwanted—and potentially hefty—early withdrawal penalty because you waited too long before extracting your funds.Should I Let My CD Roll Over?As a general rule, letting your CD roll over into a similar CD term at the same institution is almost always unwise. If you still don’t need the cash, and are interested in starting a new CD, rolling it over is certainly the path of least resistance. But it also virtually never the path of maximum return.As we’ve mentioned, shopping around is imperative if you want to earn the top rate on your CD investments. And the odds are low that the bank where your CD is maturing is currently a top-rate provider among the hundreds of banks and credit unions from which you can choose a CD. It’s not impossible you’ll do well with a rolled-over CD, but the probabilities are against you, and shopping around is always your better bet.Even if you find your existing bank is indeed a top contender, you’ll be able to move into that CD purposefully and with confidence that you’ve done your homework to score a the best possible return.What If I Need to Withdraw My Money Early?Even though opening a CD involves agreeing to keep the funds on deposit without withdrawals for the duration of the term, that doesn’t mean you don’t have options if your plans need to change. Whether you encounter an emergency or a change in your financial situation—or simply feel you can use the money more usefully or lucratively elsewhere—all banks and credit unions have stipulated terms for how to cash your CD out early.The exit won’t be free, of course. The most common way that financial institutions accommodate a premature termination is by assessing an early withdrawal penalty (EWP) on the proceeds before your funds are distributed, according to specific terms and calculations that were set out in your deposit agreement when you first opened the certificate. This means you can know before you agree to the CD if the early withdrawal penalty is acceptable to you.Most typically, the EWP is charged as a number of months’ interest, with a greater number of months for longer CD terms and fewer months for shorter CDs. For instance, a bank’s policy might be to deduct three months’ interest for all CDs with terms up to 12 months, six months’ interest for those with terms up to 3 years, and a full year’s worth of interest for its long-term CDs. These are just examples—every bank and credit union sets its own early withdrawal penalty, so it’s important to compare EWP policies whenever you are deciding between two similar CDs.It’s especially wise to watch out for early withdrawal policies that can eat into your principal. The typical EWP policy described above will only cause you to earn less than you would have if you’d kept the CD to maturity. You will generally still have earnings, as the EWP will usually only eat up a portion of your earned interest. But some particularly onerous penalties exist in the marketplace, where a flat-percentage penalty is applied. Since this percentage can outweigh what you’ve earned on a CD you haven’t kept very long, you could find yourself collecting less in proceeds than you invested. As a result, these types of EWPs are best avoided.Always check a bank’s early withdrawal policy before committing to a CD. If it’s especially aggressive—or you can find another CD with a similar rate and a milder term—you’ll be wise to stay away from the toughest penalties.Specialty CDs: Bump-Up, Add-On, No-Penalty, Jumbo, and IRAThe most common CD type follows the standard formula of depositing your funds, letting them sit untouched until the end of the term, and withdrawing them upon maturity. But banks and credit unions also offer a variety of specialty certificates with different structures and rules.Bump-up CDsThese are sometimes called raise-your-rate certificates. Bump-up CDs offer savers a chance to access a higher rate usually one time during their term. So if you open a 5-year certificate and rates rise during that period, you’ll have one opportunity to lock in at a higher rate currently offered by the bank, which will then apply for the duration of your term. Occasionally, bump-up CDs will allow two rate increases, although only for long-term CDs.Add-on CDs,Add-on CDs let you play around with your deposit amount, instead of your interest rate. Here you can open the CD with one amount, but make additional deposits to increase your invested principal. Some banks will allow as many add-ons as you like; others will stipulate a certain number of allowable add-ons per time period (e.g., per month or quarter), and a few will limit the add-ons to just one or two during the full term.No-penalty CDsThese sound enticing, as they seem to provide the interest rate benefit of a certificate of deposit, but with less risk should you need to cash out early. No-penalty CDs can indeed bridge the gap between a fully accessible savings account and a CD with an early withdrawal penalty. But as you can guess, "no penalty" comes with a price tag: a lower interest rate than you would be able to earn with a traditional CD. So it’s important to compare the rates of no-penalty CDs with what you can earn from a top savings or money market account.Jumbo CDsThese are another product you may encounter when shopping for certificates. Jumbos are simply CDs with a large minimum deposit. No governing body prescribes the floor for calling a CD a “jumbo,” so each bank decides for itself. The most typical threshold is a $50,000 minimum deposit. Some institutions call $25,000 CDs a jumbo (or perhaps “mini jumbo”) certificate, while others reserve the jumbo label for CDs of at least $100,000.IRA CDsCertificates of deposit can also be a useful savings vehicle for retirement funds. Many banks and credit unions offer IRA CDs. Some have a separate menu of CDs that are available as IRAs, while other institutions allow any of their standard CDs to be set up as IRA CDs. One difference in either case is that IRA CDs must be held in an officially designated IRA account.Getting a CD: Direct vs. Brokered CDsIf you have a brokerage account, you may have noticed CDs on offer there and wondered how they differ from certificates of deposit opened directly with a bank or credit union.The first point is that brokered CDs are bank CDs, with the brokerage firm serving as a process-simplifying middleman. That said, there are some important differences.Lower ratesAlthough brokered CDs occasionally offer rates competitive with direct bank certificates, more typically the rates on brokered CDs are lower. If maximizing your CD returns is a priority, you’ll generally be better off going straight to the source.But what brokered CDs give up in rates they counter with convenience, especially for those holding multiple CDs. That’s because brokered CDs will be included on the same regular monthly or quarterly statements you already get for your brokerage account, with all maturity dates and terms shown. This makes tracking what you hold, and when each will mature, much simpler.More convenience...Opening a brokered CD is also a bit easier. As you already have an account with the brokerage firm, it will acquire the CD on your behalf. This spares you the bank paperwork of directly opening a CD and the extra statements you get afterward. Termination is also simplified: When the CD matures, the funds will typically move into your cash account at the brokerage firm....Except if you need to withdraw earlyEarly withdrawals are treated much differently for brokered CDs than direct bank certificates. If you need to cash out a brokered CD early, you are required to sell it on the secondary market. Although access to this marketplace is provided by your brokerage firm and is generally simple to navigate, there are no guarantees on what price you’ll be able to secure for your certificate. Key factors include whether you’re selling during a rising or decreasing interest-rate environment and the time left on your certificate.Selling on the secondary market is not necessarily a negative — it doesn’t always lead to subpar returns. But what you give up is any guarantee or predictability on how much of your proceeds you’ll retain.Specialty CDs from Your BrokerBesides the standard brokered CD, there are two kinds of specialty CDs that are generally found only through brokerage firms:Callable CDsA callable certificate is a specialized CD, on which the issuing bank retains the right to recall the CD at any time. So while you hope to be locked into a certain interest rate for a certain number of years, at any point the bank can decide to end that arrangement and return your funds to you. While this won’t result in any penalties or losses for you, it can cause you to lose the opportunity of a favorable rate that was locked in for the future. For this privilege, the bank generally pays a somewhat higher interest rate. If this is a risk you want to avoid, then search your brokerage firm’s listing for “non-callable CDs”.Zero-coupon CDsAnother specialty CD you might find at your brokerage firm is a zero coupon certificate. These CDs carry a face value, much like a savings bond does, and are sold for some lower initial price. The most important thing to know about zero coupon CDs is that you will be taxed on the earned interest every year, even though you will not realize the certificate’s gain until it matures. So careful tax planning is recommended.

Actuaries work in a number of Insurance fields such as Life, Health, Pensions, Annuities, Asset Management, Property & Casualty (Auto, Home, Marine, etc), Enterprise Risk Management, and Investments.Actuaries use skills in mathematics, economics, finance, probability, statistics, and business to help businesses quantify the risk of certain events occurring, and to formulate policies that minimize the cost of that risk. For this reason, actuaries are essential to the insurance and reinsurance industry, either as staff employees or as consultants. Actuaries also work in conjunction with government agencies such as the Government Actuary’s Department in the UK or the Social Security Administration in the US. to estimate the cost of the occurrences such as death, sickness, injury, disability, or loss of property.Actuaries also address financial questions, including those involving the level of pension contributions required to produce a certain retirement income and the way in which a company should invest resources to maximize its return on investments. Using their broad knowledge, actuaries help design and price insurance policies, pension plans, and other financial strategies in a manner which will help ensure that the plans are maintained on a sound financial basis.Traditional employmentOn both the life and casualty sides, the classical function of actuaries is to calculate premiums and reserves for insurance policies covering various risks. Premiums are the amount of money the insurer needs to collect from the policyholder in order to cover the expected losses, expenses, and a provision for profit. Reserves are provisions for future liabilities and indicate how much money should be set aside now to reasonably provide for future payouts. If you inspect the balance sheet of an insurance company, you will find that the liability side consists mainly of reserves.On the casualty side, this analysis often involves quantifying the probability of a loss event, called the frequency, and the size of that loss event, called the severity. Further, the amount of time that occurs before the loss event is also important, as the insurer will not have to pay anything until after the event has occurred. On the life side, the analysis often involves quantifying how much a potential sum of money or a financial liability will be worth at different points in the future. Since neither of these kinds of analysis are purely deterministic processes, stochastic models are often used to determine frequency and severity distributions and the parameters of these distributions. Forecasting interest yields and currency movements also plays a role in determining future costs, especially on the life side.Actuaries do not always attempt to predict aggregate future events. Often, their work may relate to determining the cost of financial liabilities that have already occurred, called retrospective reinsurance, or the development or re-pricing of new products.Actuaries also design and maintain products and systems. They are involved in financial reporting of companies’ assets and liabilities. They must communicate complex concepts to clients who may not share their language or depth of knowledge. Actuaries work under a strict code of ethics that covers their communications and work products, but their clients may not adhere to those same standards when interpreting the data or using it within different kinds of businesses.Non-traditional employmentMany actuaries are general business managers or financial officers. They analyze prospective business prospects with their financial skills in valuing or discounting risky future cash flows, and many apply their pricing expertise from insurance to other lines of business. Some actuaries act as expert witnesses by applying their analysis in court trials to estimate the economic value of losses such as lost profits or lost wages.There has been a recent widening of the scope of the actuarial field to include investment advice and asset management. Further, there has been a convergence from the financial fields of risk management and quantitative analysis with actuarial science. Now, actuaries also work as risk managers, quantitative analysts, or investment specialists. Even actuaries in traditional roles are now studying and using the tools and data previously in the domain of finance. One of the latest developments in the industry, insurance securitization, requires both the actuarial and finance skills.Another field in which actuaries are becoming more prominent is that of Enterprise Risk Management, for both financial and non-financial corporations. For example, the Basel II accord for financial institutions, and its analogue, the Solvency II accord for insurance companies, requires such institutions to account for operational risk separately and in addition to credit, reserve, asset, and insolvency risk. Actuarial skills are well suited to this environment because of their training in analyzing various forms of risk, and judging the potential for upside gain, as well as downside loss associated with these forms of risk.RemunerationThe credentialing and examination procedure for becoming a fully qualified actuary can be discouraging. Consequently, the profession remains very small throughout the world. As a result, actuaries are in high demand, and they are highly paid for the services they render. In the UK, where there are approximately 8,000 fully qualified actuaries, typical post-university starting salaries range between GBP £25,300 and £35,000 (approx. US$50,100–US$69,300 c. January 2008) and newly qualified actuaries in insurance companies earn somewhere between £46,000 and £55,000 (approx. US$91,100–US$108,900 c. January 2008) per year. Many successful actuaries earn over £100,000 a year (approx. US$198,000 c. January 2008). These reflect nationwide salaries and numbers are likely to be higher in London or in the South East of England.Actuarial ExamsIn the U.S., for life, health, and pension actuaries, exams are given by the Society of Actuaries, while for property and casualty actuaries the exams are administered by the Casualty Actuarial Society. The Society of Actuaries’ requirements for Associateship include passing five preliminary examinations, demonstrating educational experience in economics, corporate finance and applied statistics—called validation by educational experience (VEE), completing an eight-module self-learning series, and taking a course on professionalism. For Fellowship, three other modules, two exams, and a special fellowship admission course is added. The Casualty Actuary Society requires the successful completion of seven examinations and VEE for Associateship and two additional exams for Fellowship. In addition to these requirements, casualty actuarial candidates must also complete professionalism education and be recommended for membership by existing members.In order to sign statements of actuarial opinion, however, American actuaries must be members of the American Academy of Actuaries. Academy membership requirements include membership in one of the recognized actuarial societies, at least three years of full-time equivalent experience in responsible actuarial work, and either residency in the United States for at least three years or a non-resident or new resident who meets certain requirements. Continuing education is required after certification for all actuaries who sign statements of actuarial opinion.In the pension area, American actuaries must pass three examinations to become an Enrolled Actuary. Some pension-related filings to the Internal Revenue Service and the Pension Benefit Guaranty Corporation require the signature of an Enrolled Actuary. Many Enrolled Actuaries belong to the Conference of Consulting Actuaries or the American Society of Pension Professionals and Actuaries.See AlsoSociety of ActuariesThe Society of Actuaries (SOA) is the largest professional, actuarial organization in the world. It is dedicated to serving its 19,000 members, and the public. The SOA's vision is for actuaries to be recognized as the leading professionals in the modeling and management of financial risk and contingent events. The SOA is committed to:Education–Providing basic education in the fundamental principles of actuarial science, advanced education, professional development and continuing education for practicing actuaries.Research–Conducting research to develop studies of historical experience and techniques for projections into the future, analyzing the actuarial aspects of public policy issues and providing the foundation for further expansion of the profession.The Profession–Promoting high standards of professional competence and conduct within the actuarial profession.Casualty Actuarial SocietyThe purposes of the Casualty Actuarial Society are to advance the body of knowledge of actuarial science applied to property, casualty and similar risk exposures, to establish and maintain standards of qualification for membership, to promote and maintain high standards of conduct and competence for the members, and to increase the awareness of actuarial science.The Casualty Actuarial Society is a professional organization whose purpose is the advancement of the body of knowledge of actuarial science applied to property, casualty, and similar risk exposures. This is accomplished through communicating with the public affected by insurance as well as presenting and discussing papers, attending seminars and workshops, conducting research, and maintaining a comprehensive library collection.Other important objectives for the Society areestablishing and maintaining high standards of conduct and competence for its membership through study and a course of rigorous examinations,developing industry standards and a code of professional conduct, andincreasing the awareness of actuarial science.BeAnActuary.orgThis Site provides an overview of the actuarial profession and is used to promote the actuarial science career. Exam information, academic programs, and job hunting tips are included. The web site is sponsored by the Casualty Actuarial Society, and Society of Actuaries.Actuarial Foundation The American Academy of Actuaries serves the public on behalf of the U.S. actuarial profession. Uniting actuaries from all practice areas, the Academy is the voice of the profession on public policy and professionalism issues.The purposes of the Academy's work are described in the mission, which was updated in 2007.The Academy was created in 1965 and is headquartered in Washington, DC.Actuarial Outpost Discussion Forum - http://www.actuarialoutpost.comThe Actuarial Outpost is the largest social networking site specifically created for actuaries. The Outpost itself has three basic subsections: jobs listings, actuarial news, and by far the most important, the discussion forums.The actuarial discussion forums are broken into five major sections, subsections, and various number of forums in each subsection. This partitioning allows for the ability to find a specific forum dealing with all areas of actuarial science, as well as having sections exclusive to specific actuarial exams.Actuarial Wiki - http://www.actuarialoutpost.com/wikiThe AO Actuarial Wiki was recently formed to help compile all of the user generated notes donated by the Actuarial Outpost's members. This wiki provides free notes for each actuarial exam.U.S. Dept of Labor - http://www.bls.gov/oco/ocos041.htmGeneral Information on the Actuarial ProfessionActuarial Jokes - http://www.actuarialjokes.comA lighthearted take on the actuarial professionHow much do actuaries make? http://actuaryjobs.com/salary.htmlA regularly updated, comprehensive list of salaries for actuaries broken down into area of interest and experience.Wikipedia entry for 'actuary' - http://en.wikipedia.org/wiki/ActuaryGeneral information on the actuarial profession.Full List of Actuarial Societies around the world - http://actuarialoutpost.com/wiki/index.php/Actuarial_Societies_List