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If you've purchased certificates of deposit that range from short-term investment periods to long-term, then you're probably at least a little familiar with yield curves. However, being just a little bit familiar can only get you so far if you're interested in being a serious investor.

So instead of continuing your time in the dark, let's take a closer look at yield curves and how they impact CDs. This way, the next time you choose to invest, you'll be able to make truly informed decisions.

What are Yield Curves?

Yield curves define the relationship between short-term interest rates and long-term interest rates when making investments in fixed-income securities. For example, if you're investing in a 6-month CD and a 5-year CD, because certificates of deposit typically offer different annual percentage yields based on the length of time invested, there will be a curve that shows the increase in interest rates from the 6-month investment to the 5-year investment.

The Types of Yield Curves

There are a number of types of yield curves that represent the different turns in interest rates the market can experience. Let's look at what they are, as well as the impact they can have on your CDs:

• Normal yield curves: This represents the short-term interest rate being lower than the long-term interest rate. This means, when purchasing certificates of deposit for 3-months, the interest rate will be lower than those of 5-year CDs.
• Inverted (negative) yield curves: These types of curves represent the opposite of the normal curve. So instead of the short-term interest rate being lower than the long-term, it is higher.
• Flat yield curves: When the normal and inverted yield curves are switching places (one is switching to the other), it will often flatten, showing very similar interest rates between short- and long-term CDs.

Understanding the type of yield curves you're dealing with at any given investment period can help you decide how to manage your certificates of deposit. So if you're thinking of purchasing some CDs, it's good to first see what type of curve we're in.

Certificates of deposit are a simple and safe way for investors to diversify their portfolios regardless of whether or not they have their money on deposit in a bank or through credit union. When using a credit union some common facts about CDs are:

• Currently CDs backed by the NCUA offer $250,000 protection against loss
• The current $250,000 insurance level of protection is temporary until the end of 2009 unless Congress votes otherwise
• CDs are timed investments thus you know exactly when your money will once again become available
• CDs can be cashed out before their maturity date for a fee or a penalty charge
• CD rates work in direct correlation with the short term rates issued by the Federal Reserve
• There is a guaranteed rate of return for CD investments

Although credit unions tend to operate very similarly to banks in regards to CD rates, there are some differences. Credit unions offer share savings accounts that are very similar in nature to traditional bank savings accounts. However, those who utilize credit unions for their banking are considered "members" or partial owners of the credit union, therefore their accounts are called share savings accounts.When you have invested in a credit union CD as a holder of a share savings account there are several ways you can tap into the interest earned including:

• Have the interest funneled directly into an IRA account for retirement
• Choose to have the interest add onto the current CD principal, opt into a new CD and then let the interest compound
• Reallocate the interest paid into another investment tool such as your share savings account
• The bank can issue you a check directly for the profits so you can spend the money however you please

When investing into a CD courtesy of a credit union, it is important to research all the terms of the deposit as they will fluctuate depending on the length of CD as well as other contributing factors.

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