CD Risk

Are Certificates of Deposit Considered Low Risk?

September 2012

Certificates of deposit (CDs) are one of the safest ways to save. The FDIC (Federal Deposit Insurance Corporation) insures customer's deposit accounts, including CDs, at member banks like Ally Bank to the maximum allowed by law. As a result, CD risk is very low and limited to 1) the fact that depositing money in a CD means you can't invest that same money in another opportunity, and 2) you may have to pay an early withdrawal penalty if you access your funds before maturity.

Perhaps more important than the issue of CD risk is whether a CD really makes sense for you and your financial plans. That's because CDs generally require you to keep the money in the bank for a set amount of time until the designated maturity date. At Ally Bank, for example, you can deposit money in a CD for anywhere between a few months and a few years, and the longer you keep the money on deposit, the more interest you will generally earn.

However, you might call the early withdrawal penalty a "CD risk" in a way because if you need to access your funds before the maturity date, part of your money is forfeited. There are three ways to avoid this, however:

  1. Choose a CD that does not have an early withdrawal penalty. For example, consider the Ally Bank No Penalty CD, which earns a competitive rate on an 11-month CD, and should you need to withdraw your money you can - including any interest earned - without paying an early withdrawal penalty any time after the first six days of funding your CD.
  2. If you want the most flexibility, put your money in a savings or money market account that does not have an early withdrawal penalty, but may have transaction limits.
  3. Keep your money in the CD until the maturity date.

You can manage or eliminate CD risk when you go into it knowing all the terms. With easy-to-understand terms, and a full line of CD accounts, Ally Bank makes saving convenient, easy and rewarding. Learn more at allybank.com or call live, 24/7 customer service at 877-247-ALLY (2559) today.

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