How to Convert a Certificate of Deposit to a Bond Fund
- 1). Cash in the certificate of deposit at your bank after the maturity period is up. You'll get back the principal in the amount you originally invested, plus the interest you earned. Remember that if you sell a CD before it matures, you may pay a penalty.
- 2). Research bond funds. Although your reason for converting the CD into a bond fund may be to get a higher yield, be aware that bond funds are riskier investments than CDs. Bond funds fluctuate in value, unlike CDs, so there is always a risk your invested amount will decline. Also, a CD is insured by the Federal Deposit Insurance Corp. up to $250,000, but bond funds have no such protection.
- 3). Understand that, generally speaking, the higher a bond fund's yield, the greater the risk. In exchange for a higher yield, you are giving up the safety and security you had with a CD.
- 4). Determine how much the bond fund will cost you. Some funds are no-load and spare you a fee, some charge a front-end fee and some charge a fee only when you sell the fund. Additionally, all bond funds have annual expenses, fees that are taken out of the fund's earnings before the profits are passed along to you. Buy a fund that both fits your investment needs and charges the lowest possible fees.
- 5). Take the proceeds from your CD and purchase the bond fund you've chosen, either online at a mutual fund company like Fidelity or Vanguard or through your broker.
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