How does a Mutual Fund work and how is that different from a CD account?
Mutual Fund = Group of stocks, bonds, or other securities.
A “Fund Manager” uses the funds collected from many investors to purchase securities that match the fund objectives as outlined in the “Fund Prospectus”.
There are many different types of mutual funds (stock funds, bond funds, blended funds,etc.).
A mutual fund is less risky than individual company stock due to the diversification aspect of a fund.
CD = Certificate Of Deposit.
Basically, with a CD you allow a bank to borrow your funds ($500.00, $1,000.00, etc.) for a certain time period (6 months, 1 year, etc.) in exchange for the payment of interest (2%, 3%, etc.) to you on the funds you deposited with them.
When the CD “matures” the bank owes you your deposit amount plus the interest earned for the time period.
Normally, you will pay a penalty (forfeit a portion of the interest earned) if you cash out a CD early (before maturity date).
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