If you want to grow your savings without taking too much investment risk, you don’t have to limit yourself traditionallyor . Another option is to keep money a )
Although there are some different types,Depositing money at a bank or credit union for a specified period of time in exchange for a specified annual percentage yield (APY).
For example, you can put money in a 1-year CD, which means you usually leave the money in that account untouched for a year, after which you can withdraw the principal and accrued interest. If you have to withdraw early, you usually have to pay a penalty, which often means giving up some of the interest you’ve earned.
A CD can last a few months or a few years, depending on what the financial institution offers and what you prefer. Generally, the longer the term of the CD, the higher the interest rate. You can have multiple CDs with different maturities, such as if you want to set aside some money in a 5-year CD to earn a higher APY, while keeping other funds in a 1-year CD so you don’t have all the money. Locked for so long. Doing so can be a good way to earn income without buying complex financial products.
If you’re thinking about opening a CD, start by checking today’s CD interest rates to see if it makes sense for you, or use the table below to explore some local options.
4 Reasons You Should Open a CD Now
In particular, some of the top reasons you can open CDs now include the following:
- May earn more interest than other accounts
In general, CDs pay higher interest rates than checking accountsEspecially with long-term CDs.
For example, the average rate on National Savings Accounts is 0.35% as of February 2023, Federal Deposit Insurance Corporation (FDIC). A 1-month CD pays an average of 0.18%, so it probably won’t make sense to do it right away, but a 3-month pays 0.61%, according to the FDIC. And a 12-month CD pays 1.36%, so if you can set the funds aside for a year, you can earn multiple times the interest you’d get in a savings account.
Note that these are only averages. If you shop around, you can probably find CDs that rate much higher, like around 4.5% for a 1-year CD, through March 2023. Use the table below to explore some high-interest-rate CD offers now.
2. Rate lock
A higher advance rate may be advertised, but this may fluctuate over time. If the Fed eventually cuts interest rates, banks will likely cut yields on checking and savings accounts as well.
But if you put money in a 5-year CD, for example, you’ll keep getting the same rate for those five years, no matter what the Fed does.
On that note, longer-term CDs actually have lower interest rates now than some shorter-term CDs, indicating that the market expects rates to fall in the future. And since you don’t know exactly what it will look like, you may prefer to have a guaranteed return over a period of time.
3. Provides relatively low risk returns
While CDs may not offer as high returns as other assets such as stocks and bonds, they provide a relatively low-risk source of income. You can protect your original investment while still earning returns. And you can get federal insurance on these deposits that will protect you if your bank goes bust, though you’ll want to make sure you’re buying a qualified CD.
Even relatively safe assets such as Treasury bonds, for example, can carry more risk than CDs in the sense that if you have to sell before maturity, you may face a loss depending on market conditions. Or, with I bonds, for example, there is a minimum 12-month holding period.
4. Automatic saving can help
Another potentially beneficial feature of CDs is that they often have an automatic renewal feature.
Although you still want to make sure you renew your CD for another term as it nears maturity—if another investment option makes more sense for you at that time—being able to automatically roll your funds from one CD to another is easy to keep saving.
In contrast, if you sell stocks, for example, you may need to manually choose a new place to put those funds if you want to optimize earnings.
Explore your CD options online now or use the table below to see how much more you could earn
Overall, CDs can be an attractive place to save money for people looking to make a small amount of money without taking on huge risks. Note that CD interest is generally taxable, like other types of bank interest, but if you can get a higher yield on a CD than some other accounts, it may be worth it. Especially in the current environment of recent interest rate hikes, CDs may be more attractive to you now than in the past, so it may be worth looking into.