Certificates of deposit (CDs) used to be one-size-fits-all. (Has that ever really worked out?) Times have changed, and now you can find different types of CDs with a variety of terms tailored to your personal savings goals. With a little know-how about CDs, you can make an informed decision that works with your own terms.
Read on for a few considerations when choosing a CD that fits your unique savings strategy.
1. Get a handle on CD basics
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 of time. 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 can close it and take out your money, add money and renew it into a new term, or do nothing. Depending on the bank, if you do nothing, it will simply roll over into the existing term again.
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.
2. Do some savings soul searching
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 that 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 answer these three questions:
How much do you have?
How long can you keep it tied up?
What's your main priority: Flexibility or yield?
3. Match the CD to your goals
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.