A certificate of deposit is a safe investment method for individuals who wish to profit off their money. In order to yield the highest amount of profit from your CD, it is important to understand exactly how they are set up and what options you have when purchasing.

The way CDs work is simple. Essentially the investor makes an agreement with a financial institution to deposit a fixed amount of money for a fixed amount of time. In return the institution offers a higher than standard interest rate. The catch is that the investor must not withdraw any money from the CD fund until it has reached maturity (its expiration date). Generally, longer-term CDs with larger deposits have better interest rates and greater long-term profit yields.

When purchasing a CD you may have the option to choosing how to be paid interest. Many people choose to have the interest paid into their checking or savings account as it accrues. One way to yield a higher profit is to let the interest compound or be added to the principle. This will increase the amount of the total sum interest is being paid.

Another factor to consider is whether you want a fixed or variable interest rate on the CD. Banks offer fixed rate CDs, which protects investors from the fluctuations of the market. This is a double edged sword. While the investor will not suffer any profit loss should interest rates fall, they will also not benefit from rising interest rates. Variable interest rates are riskier, but can benefit the investor greatly.

Finally, you can ensure a high yield CD by comparing the rates offered by several different   financial institutions. Banks and credit unions that need deposits will often have CD “sales” during which they offer higher than normal interest rates. Online only banks also offer great interest rates as they have no overhead and can pass savings directly onto consumers.