Interest rates are on the rise, making now a better time than any to make smart investments. A CD, or certificate of deposit, is a type of savings account that has fixed interest and maturity dates. Widely available from banks and credit unions, CDs are considered one of the best savings options for investors looking to play it safe. A CD investment is a great option for individuals who will not need their cash reserves in the near future and want to earn a better rate of return than what is available with standard checking and savings accounts. Learn more about the benefits of a CD account and what you can expect from CD interest rate growth.
Why Invest in a CD
Certificates of deposit are considered a safe place to hold assets. Similar to a savings account, a CD earns interest over a set period of time. However, CDs typically yield returns that are far greater than standard savings accounts due to higher interest rates. While interest rates vary from institution to institution, most are near the current rate of inflation. In 2018, CD interest rates are expected to gradually increase.
When shopping for certificates of deposit, it is important to compare the different types of CDs and interest rates. It is also essential to understand the difference between annual percentage rate (APR) and annual percentage yield (APY). APR is the amount of interest earned in the course of one year, without accounting for compounding. Compounding is the timing of interest calculation or payment. On the other hand, APY is the amount of total interest that a CD will earn in the course of a year with compound interest.
Benefits of a CD Account
If you are in search of a secure way to grow your money, a CD account may be the right option. Deposit accounts have a set term, typically ranging from three months to 10 years. During this time, interest continues to grow. When you withdraw your funds on the withdrawal date, you can withdraw your original funds and any accumulated interest. With a fixed-rate CD, there is a set interest rate that is paid throughout the life of the CD. With a variable-rate CD, a percentage is typically paid based on the difference between the interest rates at the start and end of the CD’s terms. With an adjustable-rate CD, the interest rate at deposit can be adjusted during the term.
Many new investors are apprehensive about tying up their money in bonds or the stock market. One of the biggest benefits of a CD account is there is no real risk. As the FDIC insures CDs up to the maximum amount allowed by law, your funds remain secure while in the account. To be safe, always confirm with your bank or credit union that the CD you have chosen is indeed insured by the FDIC.
Another benefit of a CD account is there vast versatility. As certificates of deposit come with different maturity dates, you can choose a withdrawal that best suits your needs, lifestyle, and goals. Maybe you are planning a major vacation and want to save as much as possible for the special getaway. Or perhaps you have a child entering college in a few years and want to invest in his future. No matter the reason for your investment, having the ability to choose a favorable maturity date while keeping your funds in a safe place can be highly beneficial for investors of all ages.
Finding the Best CD Rates
Finding the best CD interest rates require a little time as you shop around for products that meet your needs. If you are new to CDs, consider a short-term account, such as a 1-year CD. Avoid CDs that are set to mature in less than one year as most pay an interest rate that is similar to a good savings account rate. If you are not sure if you will need the funds in the future, it is also wise to avoid multi-year maturity dates. To learn how you can find the best rates at your local Virginia community bank or to open a business checking account, contact FVCbank today.