When researching savings account options, you are likely to come across CDs. A certificate of deposit, or CD, is a type of savings account that maintains a fixed amount of money for a fixed period of time. The term of a CD can range from one month up to five years or longer. During the CD term, interest continues to accrue. When you go to redeem your CD after the length of the term has expired, you can collect both your original deposit and any interest that has been earned.
Learn more about the benefits of a CD and where to get one.
1. CDs are a Safe Choice
It can be unnerving to put your money into an untouchable account for an extended period of time. However, you should know that a certificate of deposit can put many of your fears about savings accounts to rest. CDs are insured by the Federal Deposit Insurance Corporation (FDIC) up to the maximum amount allowed by law.
A CD also comes with other protections that make it a more favorable option than other investments. For example, unlike stocks where you can gain or lose large sums of money in a single day, interest on a CD will continue to grow throughout the term of the CD.
2. CDs Have Fixed Rates
With other types of investments, returns can be unpredictable. However, CDs often have fixed rates which allow you to estimate how much your return will be and allows you to plan for your future. The fixed rate of a CD remains until the fixed term is mature. This allows the CD to experience a slow and steady interest growth.
3. CDs Have Different Maturity Dates
Not everyone wants their money tied up for extended periods of time. That is why there are a variety of different maturity dates that you can choose from when researching your options.
If you do not want a long-term investment, you may choose a term that is just six months or one year. If you are saving for your child’s college education or have another long-term goals, a longer term may be right for you. Certificate of deposits are also a great option when saving for large expenses.
4. CDs Have Low or No Fees
One of the biggest benefits of a CD is that they typically have low or no fees. Many banks do not charge a monthly fee to hold your funds in a CD. This means that you do not have to worry about hefty fees reducing your interest earnings. However, you should be aware that there is typically a penalty for withdrawing funds of a CD prior to maturity. This penalty may reduce your principal and/or interest earnings.
5. There Are Several Options
It is important to note that there are several types of CDs to choose from. Traditional CDs are the most common and have maturity dates that typically range from a few months to several years. If you want to invest a larger amount of money, consider a jumbo CD.
Jumbo CDs typically require an initial deposit of $100,000 but the interest built can be substantial. Another option is an individual retirement account CD, or IRA CD. This type of CD carries many of the same benefits available with traditional and Roth IRAs, making them popular options.
6. CDs Are Great for Spenders
While some people are natural savers, others are impulse spenders. If you have been trying to save your money in a traditional savings account but continue to make withdrawals, a certificate of deposit may be the right savings tool for you. Your deposit is essentially ‘locked away’ until the chosen term is mature and you are unable to withdraw the money without penalty.
Learn More About CDs Today
In short, a certificate of deposit is an excellent way to achieve a healthy rate of return on your hard earned money that is simply sitting in your bank account. If you do not think that a CD is the right option for you, consider alternatives such as a traditional savings account or a money market account. If you need assistance setting up a CD or want to learn more alternative savings options, an experienced banker at FVCbank can help you.