There are a lot of options when it comes to investing your money. For someone who’s not ready to jump into the stock market, but is looking for something beyond a traditional savings account, a certificate of deposit (CD) is a great choice. CDs are low-risk and carry a better rate of return than savings accounts.
How they work
There are multiple types of CDs, but in general, a CD is a timed deposit. This means once you put your money into the account, you agree to leave it there for a certain amount of time. It’s untouchable unless you’re willing to pay a penalty fee for early withdrawal. At the end of the agreed-upon term, you get your money back, plus interest. Here’s something to consider when opening a CD:
- What is the APY, or annual percentage yield? The APY is the rate of return you will get each year, taking into account the effect of compounding interest. The higher the APY, the more money you’ll get at the end of the term.
Options: While you can’t withdraw your money during the agreed-upon term of your CD, there are plenty of choices when it comes to term lengths and even types of CDs.
Safety: CDs, along with our checking and savings accounts, are covered under FDIC insurance up to $250,000 per depositor, making them a safe and low-risk investment. For more information about FDIC insurance coverage visit the FDIC website at https://www.fdic.gov/deposit/deposits/
Low/No Fees: Typically, banks have a low (or no) monthly fee to keep your money in a CD there. This helps maximize your earnings.
Fixed Returns: This means the rate received at the beginning of the term will remain constant throughout the length of the CD, even if interest rates fall in the broader economy.
Non-liquidity: For the duration of your CD’s term, this money is inaccessible without paying penalty fees, so make sure to plan ahead financially.
Did you know: One way to maintain some liquidity is to receive your interest throughout the term, by having the interest direct deposited into your checking or savings account.
Inflation risk: If your rate doesn’t keep up with the rate of inflation, you’re losing money in the long-run. To combat this, consider the length and type of CD you pick.
Fixed Returns: This one is also under disadvantages because your rate will remain constant throughout the CD term, even if interest rates rise in the broader economy.
For full details and to find out how to open up a CD today, visit our website.