Pros and Cons of Certificates of Deposit

CD Pros and Cons

September 2012

Considering a CD as a savings option? As with any financial decision, you should weigh the pros and cons of certificates of deposit (CDs) before you open an account. A CD is an easy, sensible way of saving money that can earn interest, too. You'll find CD products at banks or credit unions. In fact, online banks often offer some of the best options and highest CD rates.

CD Pros

Let's start with CDs' primary advantage: they are typically considered very safe. The Federal Deposit Insurance Corp. (FDIC) currently insures customer's certificates of deposit at member banks like Ally Bank, to the maximum allowed by the law.

Certificates of deposit also offer you fixed or variable interest rates. You will be able to anticipate the rate at which your balance grows, so making plans for the future is that much easier.

Another advantage to CDs is that they earn steady interest at a higher rate than most regular savings accounts. They can be a great way to diversify beyond the savings account you may already have, or an excellent alternative to such an account, depending on your needs.

CD Cons

You should know that CDs require that you keep your money on deposit for a set time frame before withdrawing it in order to avoid early withdrawal penalties. If you think you may need this money for a possible financial emergency, consider a no penalty CD, which allows you to withdraw your money, and the interest earned, at any time without paying an early withdrawal penalty any time after the first 6 days of funding your CD.

CDs' pros often outweigh their downsides and allow you to grow your savings hassle-free. It's easy to compare CDs online, and some of the best CD rates can be found with online banks. Find out which CDs from Ally Bank can meet your financial needs. Learn more at allybank.com or call live, 24/7 customer service at 877-247-ALLY (2559) today.

Related articles: