02/14/2023: What Are CDs And Why They May Work For You!
What is a CD?
A certificate of deposit (CD) is a savings product that earns interest on a lump sum for a fixed period of time. CDs are different from savings accounts, because the money must remain untouched for the entirety of their term or risk penalty fees or lost interest. CDs typically offer a higher interest rate than savings accounts as an incentive.
Why a CD May Be a Good Option For You
Almost all consumer financial institutions offer CDs, although it’s up to each bank which terms it wants to offer, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties it applies for early withdrawal. CDs can be a savvy option for those who know they’ll have a particular sum of money in their savings anyway, and would like to earn a higher rate of interest over a given year than a traditional savings account might earn.
Finding Your Best CD Option(s)
Some of the best rates offered for CDs can come from special promotions. You’ll want to consider the terms for each CD, particularly length of time. Some are offered in smaller increments like 3 or 6 months, while many are offered for longer periods of time, 12 or 18 months. Leaving your funds on deposit for a fixed period of time is a commitment to that bank, and in return, the bank makes a commitment to you to pay you the annual interest rate offered on the CD at the time of securing.
Are CDs safe?
CDs are a safer, more conservative investment than stocks and bonds. In today’s volatile stock market, a CD can ensure you a particular interest rate that’s fixed over the term of the CD invested in with that bank. There are always options for exiting the CD early, should you encounter an emergency or change of plans. There’s likely a penalty that’s incurred with early withdrawal of the funds. So be certain you’re clear on what the penalty for early withdrawal is before investing in a CD.