Certificates of deposit (CDs) offer a variety of terms that work for your personal savings goals.
Consider a few criteria when choosing a CD that fits your unique savings strategy, and take the two-question quiz below to see the right CD for you.
1. Understanding certificates of deposit (CDs)
A CD is a type of deposit account, like a savings account. However, the big difference (and benefit) is that opening a CD allows you to lock in a rate for a specific period. So, once you deposit a specific amount into the CD, you don’t have to worry about rate changes until the time limit is up. At that point, once the CD has “matured,” you have a few options: You can close it and take out your money; you can add money and renew it into a new term; or you can do nothing. Depending on the bank, if you do nothing, it will simply roll over into the existing term again. Note that if you do allow your CD to roll into another term, the interest rate will change to the latest terms, including rate.
CDs with longer terms usually offer higher annual percentage yields (APYs) than shorter-term CDs. However, when choosing a CD, it’s important to note that you’ll likely pay an early withdrawal penalty if you need to close the CD before the term is up, as most CDs don’t allow any withdrawals during the term.
Factors to consider
Term length: How long your money is locked in the CD. If you do need to withdraw early, check your bank’s terms regarding early withdrawal penalties.
Interest rates: The amount of interest you earn on your initial deposit, typically presented as annual percentage yield. For CDs, the interest rate is locked in for the length of the term.
Minimum deposit: This is the minimum amount you must deposit into the CD when you open it. Ally Bank doesn't require a minimum.
Maturity date: This specific date is when the CD term ends and the money in the CD (including earned interest) is made available.
2. Determine your savings goals
Choosing the right CD requires you to get real about your savings goals. Are you saving for a special anniversary trip in five years? Do you need a safe place for an excess emergency fund to grow? How long can you feasibly go without access to that balance?
Get out your bank statements, calendar and maybe your bucket list, and determine how much you can set aside, how long you can keep it tied up and whether flexibility or yield is most important to you.
3. Choosing the right CD
Once you have your goals outlined, you can make some solid decisions with your funds. You may find you have a number of options, depending on the financial institution you go with. For instance, we believe in offering as many opportunities as possible to help your money grow, so we have three different types of CDs with varying terms: High Yield CDs, a No Penalty CD, and Raise-Your-Rate CDs. Compare our CDs.
Of course, you don’t have to choose just one. You can open different CDs for different goals, and even layer them in a CD ladder to keep a portion of your money accessible on a regular basis.
No matter which CD — or combination of CDs — you choose, adding CDs to your strategy is a great way to save money without having to keep an eye on rate changes. Once your CD account is open, your rate is locked in, and you’ve reached a new level of security with your savings.
