There are many things to consider when managing your financial portfolio for retirement. If you're looking into certificates of deposit (CDs), you may have concerns about the time commitment you want to make. At the same time, you are most likely looking for a high rate of return to grow your savings as quickly as possible. So, to find the right balance between term length and annual percentage yield (APY), it's important to know your options.
Guidelines for Choosing CDs
For starters, look for the high-interest CD that best suits your needs. Ally Bank offers rates that are consistently among the most competitive in the country—with no minimum opening deposit requirement. This is important because some banks require you to deposit a certain dollar amount to receive their best rates.
The APY on high-interest CDs will vary. But generally, the longer the CD term, the higher the interest rate. One of the basic components of CDs is their built-in incentive to stay the course (there's usually a penalty for early withdrawal). This means you have some decisions to make about your CD term before you commit because it probably doesn't make sense to opt for a high-interest CD if you'll end up losing the interest you earned—and possibly some of your principal—to access the money before the account matures.
Keep in mind a few factors when deciding on a CD term:
- Your cash flow needs. How soon will you need access to the money you plan to deposit? Think about any major expenses you can foresee, and make sure you keep enough cash available. You might also consider buying CDs of varying lengths, creating what is known as a CD ladder, so that your money becomes available in stages.
- Your potential reward. Once you've decided how long to commit your money to a CD, compare APYs for that term across different banks. Know the penalty for early withdrawal of your CD. Consider whether the additional interest on a longer CD will cover you in the event that you need to pay that penalty.
- The outlook on rates. Before purchasing a CD for any length of time, think about where bank rates may be headed. If rates are unusually low, it may be wise to keep some flexibility with a shorter CD term. You could also consider the Ally Bank Raise Your Rate CDs, which give you the option of a one-time rate increase if our Ally 2-Year CD rate goes up and the option to increase your rate twice (two times) if our Ally 4-Year CD rate goes up.
Once you've taken these things into account, make sure you compare several CD rates, as well as their terms and conditions, to find the one that will work best for you. The bottom line is that "high-interest certificate of deposit" is a relative term, and it pays to compare the details before you commit.
Take a look at how our CDs can help you balance a great rate with the right CD term length. Visit Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.
Ally Bank, Member FDIC