When saving for the future, many people find that certificates of deposit, or CDs, can be good way to reach their financial goals. CDs are generally considered low-risk places to park your money, and they usually earn interest at higher rate than savings accounts.
Before buying a CD, many people will want to compare CD rates. After all, the higher a CD's rate, the more money you can expect to earn on your deposit. But just because one CD has a higher rate than another doesn't necessarily mean it's the right choice. There are a number of factors to consider before you compare CD rates that can help you find the right CD for your financial plan.
Consider Your Timing
One of the most important questions to ask yourself before buying a CD is how long you plan to keep your money in the account.
Most CDs have fixed-terms, meaning you can't withdraw money from the CD until it matures without paying a penalty. CDs mature depending on the length of the CD's term. For example, a CD with a one-year term will mature after one year. A CD with a five-year term will mature after five years.
When you compare CD rates, you'll notice that typically, the longer a CD's term, the higher its interest rate. Therefore, if you know that you won't need access to your money for a few years, you might be more comfortable putting it in a longer-term CD with a higher rate. On the other hand, if you expect to need access to your money earlier, you might look for a CD with a shorter-term and lower rate.
One reason CDs can be a good option for saving money is that they are generally considered low-risk. With most CDs, you get a fixed interest rate for the life of the CD. This can help to provide stability during uncertain times.
It's important, however, to make sure that the financial institution offering a CD is FDIC insured. Some financial institutions may offer CDs with higher rates that are not FDIC insured. While the higher rate may seem attractive, money in CDs that are not FDIC insured can be at risk should something happen to the financial institution.
At Ally Bank, deposits in our CDs are FDIC insured to the maximum amount allowed by law.
With most CDs, you get a fixed rate for a specific amount of time. But what if you're not sure how long you want to keep your money in the CD? Or what if you compare CD rates later and find that they've increased after you've already gotten a fixed rate?
If you're looking for more flexibility, you might want to check out a CD that let you withdraw money before the maturity date without a penalty, or a CD that lets your raise your rate if rates go up.
At Ally Bank, we offer CDs for both situations:
- The Ally Bank No Penalty CD allows you to withdraw all your money, including interest earned, without any penalties, anytime after the first six days following the date you fund your account.
- The Ally Bank Raise Your Rate CD will allow you to increase your rate a certain number of times over the term. With our Raise Your Rate CD 2-Year CD, you can start with a great rate and get the option of a one-time increase if our rates go up for the term of your CD. With our Raise Your Rate 4-Year CD, you have the opportunity to increase your rate twice if our rates go up for the term of your CD.
And with every Ally Bank CD, you can open and fund your account with any amount, and we compound interest daily for maximum earnings. If you have additional questions about Ally Bank CDs, or if you'd like to find out how to open a CD, you can reach us 24/7 by chatting with us at AllyBank.com or by calling 877-247-ALLY (2559).