Four Factors to Consider When You’re Ready to Buy CDs (Certificates of Deposit)

Weighing Options When You Buy CDs

March 2015

Certificates of deposit (CDs) can be a great way to save.
And once you've decided that you want to buy CDs, consider the following four factors.

  • Your goals. CDs are a great way to put money away for something specific—like a child’s education or wedding, a vacation or home down payment—that has a predictable start time. With CDs you’ll likely know your exact return and therefore can plan ahead with confidence. But CDs are a great way to save for less specific purposes, too. Whatever the case, knowing your goals can help make your decisions easier.
  • CD term. The term of your CD is the length of time your funds must remain in the account before you are able to withdraw the money and interest earned without penalty. A CD may have a term of a few months, several years or anywhere between. In general, you want a term that is long enough to get a good rate, but not so long that your money is unavailable when you need it. It’s a good idea to consider whether you have enough other money available in savings or other maturing CDs when deciding the term length that is right for you.
  • Annual Percentage Yield (APY). People often look at just the interest rate when they want to buy CDs. But the APY can tell you much more. Essentially, the APY calculates the combined effect of the interest rate and the compounded interest you earn. With a given interest rate, the more frequent the compounding, the higher the APY.
  • Penalties. CDs typically have early withdrawal penalties for taking withdrawing the principal before maturity. These penalties vary widely, so it's a good idea to compare before you commit. Of course, it's best to plan ahead as much as possible to avoid having to take money out early.

Ally Bank offers several types of CDs to help you meet your financial goals, all at some of the most competitive rates available. Take a look at our High Yield, Raise Your Rate, and No Penalty CDs. Learn more by visiting Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.

Ally Bank, Member FDIC

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