With the New Year around the corner, it’s a natural time to set new financial goals for the future. Some might be long-term, like planning for retirement or saving for a down payment on a house. But you can also set shorter-term goals for things that you can achieve in just one year. If that’s the case, you might consider the benefits of opening a 1-year certificate of deposit.
CDs tend to enjoy better rates than savings and money market accounts. In other words, they help your money grow more quickly. What’s unique about a 1-year CD? The answer comes down to its advantageous rates and timing.
According to Bankrate.com, 1-year CDs can be attractive to savers because their rates are usually higher than 3-month or 6-month CDs, yet you still have access to your money in just one year. While you can withdraw money from a CD at any time, if you do so before it matures you typically receive a penalty (Ally’s No Penalty CD is an exception). These benefits make a 1-year CD especially useful for certain kinds of goals.
Benefits for Short-Term Goals
There are certain things in life that you know you will be purchasing in a year’s time. For example, you may already know that you want to go on a vacation just after next year’s holidays. Or you might have plans to buy a new car sometime in the following spring. Another common goal that you can plan for a year ahead of time is a big life event, such as a wedding.
These are the kinds of goals that a 1-year CD can help you achieve. And, of course, your funds will have been growing at a better rate than they likely would have in most savings or money market accounts.
Benefits for Long-Term Goals
If your savings strategy looks ahead more than a year, a 1-year CD can still play a role. For example, you might incorporate a 1-year CD into a CD laddering plan. This is a strategy that initially combines shorter and longer-term CDs into a single savings plan. The longer-term CDs typically enjoy higher rates, while the shorter term CDs provide quicker access to your money. If you’re looking to start a CD ladder, it’s smart to include a 1-year CD in the plan.
Regardless of what you may be saving for, there are plenty of CDs — including those with longer terms — that can help make the most of your money. If you start with a plan, you’re already on your way to achieving your 2014 goals.
What big purchases are you expecting to make around this time next year? Do you have a CD ladder or plan to add a one-year CD to your savings plan?