How to Pick the Best CD Account According to Experts

Certificate of Deposit Account — or CD — is a type of savings vehicle. they are Allows you to earn a fixed rate of interest on your money As long as you leave it there for a certain period of time (usually between six months and five years).

In recent months, CD interest rate The increase is thanks to changes in Federal Reserve policy, among other factors.

“Rising interest rates and an unpredictable stock market have elevated the traditional bank CD from a sleepy savings tool to a savvy investment strategy,” said Seattle Bank President and CEO John Blizzard. “One-year CDs are yielding 5% more today than 0.2% two years ago.”

This 5% rate will earn you $250 on a $5,000 deposit in just one year’s time. Are you interested in opening a CD? Check out your CD options here now to see how much more you can earn.

How to Choose the Best CD Account According to Experts

There are many CD accounts to choose from. To make sure you choose the best one for your budget and goals, you need to follow the following three steps:

1. Consider the fine

CDs are designed as a set-a-and-forget-it type of product. You deposit money, leave it in the account for a predetermined period of time, and then withdraw the funds when that period has passed.

However, emergency expenses come up, and there may be cases where you need to access those funds earlier than planned. If it does, many CDs will charge you a hefty penalty — often three months to a year’s worth of interest costs.

If you want to keep access to your money (perhaps your savings are low), you might want to look into no-penalty CD accounts — those that don’t have early withdrawal fees.

“It’s generally recommended to have three to six months’ worth of expenses saved in a rainy day fund in case of unexpected income loss or emergency expenses,” says Ben McLaughlin, president of online savings platform SaveBetter. “Instead of letting that cash sit in a checking account where it won’t bring in additional income, savers can put their emergency savings in a high-yield savings account or no-penalty CD, where savers can withdraw their money quickly without incurring fees and at a decent rate of return. drink.”

Just be warned: You’ll typically get a “slightly” lower interest rate for accounts with no fees, McLaughlin says.

Explore your CD options here to find an account that’s right for you

2. Think about your timeline

You also need to think about your timeline for your investment. Are you looking to get your interest money sooner? Perhaps buy a house or make some other big purchase? Or are you focused on long-term goals like your child’s college education?

Your timeline will determine which CDs to buy — and, in particular, What words to choose. Depending on your goals, you may consider A CD “Ladder.”

“It’s a method of securing the most attractive fixed interest rate during a period of rising rates,” says McLaughlin. “Start with the amount you want to invest and divide it into smaller amounts, then buy multiple CDs in different time increments.”

For example, if you have $10,000 to invest, you can break it up into five $2,000 chunks, opening five different CDs with terms of one, two, three, four and five years.

3. Shopping nearby

The final step is to compare banks. While you can certainly use your main bank for CDs (if they offer them), it’s usually best to research a few other options to make sure you’re getting the best deal.

“Shopping around is the best favor you can do for your future self,” says McLaughlin. “The institution you normally bank with may not have the best possible rate. Twenty minutes of due diligence now could mean thousands of dollars more in interest years down the road.”

Blizzard recommends looking at both local and national banking institutions, as their rates and products can vary widely.

“Big banks dominate advertising on online platforms,” ​​says Blizzard “But the truth is that it’s often community banks and credit unions that offer the best rates.”

Start shopping for a CD account now here or through the table below.

look ahead

CD rates have been increasing lately, and if the Federal Reserve continues to raise its benchmark rates, they could jump further as we move into the rest of the year. This can make laddering a smarter strategy, especially if you have a lot of cash to invest.

If you’re not sure if a CD is the right move for your investment goals, be sure to talk to a financial advisor or investment professional. They can help you make the right decisions for your portfolio.