Do Bank CDs Pay Monthly Dividends?

Boost your monthly cash flow with a CD.

Investors who are looking for a way to keep their money safe and earn a competitive rate of interest often turn to certificates of deposit. A certificate of deposit insured by the FDIC protects your money up to $250,000 per account, providing you with a safe, steady and reliable cash flow. You can find a CD that pays you income on a monthly basis and use that money however you wish.

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CD Terms

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Different certificates of deposit have different terms and conditions and different payment schedules. Before you buy any CD, you should carefully read the fine print and understand the conditions. The fine print of the CD agreement will clearly spell out how the interest rate is calculated and how often the interest is credited to your account. Some certificates of deposit pay their interest on a monthly basis, while others use a semi-annual or an annual schedule.

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Monthly Transfer

If you are investing in a certificate of deposit for current cash flow, you might be able to set the account up to transfer the monthly interest directly into your checking or savings account. Setting up such a monthly transfer can make it easier to track your earnings and easier to meet your current expenses through your CD investments. You can set this monthly transfer up when you first buy the CD, or you can establish it later by visiting your local bank branch and requesting a transfer form.

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Fixed Payments

Most certificates of deposit pay a fixed rate of interest for the entire term, although some have options that allow you to lock in a higher rate if interest rates go higher. Most CDs also have a set payment schedule, either monthly, semi-annually or annually. In some cases, however, you might be permitted to change your payout schedule if you wish. If you are interested in changing your current CD payout to a monthly schedule, your first step should be to contact your local bank branch. Ask the bank representative if you can change to a monthly payment schedule to boost your cash flow and make the most of your investment.

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Taxable Income

Unless you hold your CD in a tax-deferred account like an IRA or a 401(k), the money you earn in your CD is considered taxable income. It is important to keep track of the money you earn on your CD each month and make sure you set aside money to pay any taxes due. It is your responsibility to pay the taxes due on any investments you own, including money market accounts, savings accounts and certificates of deposit. Putting money aside to pay the taxes will protect you by making sure you have the money available to pay any additional taxes generated as a result of your CD holdings.

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