Why Should I Open A Certificate Of Deposit Account?September 13, 2022| Helpful Tips
A certificate of deposit account can help save and generate interest on funds, provided you won’t need the funds quickly. This article highlights some benefits of investing in a Certificate of Deposit (CD) account and why it may be a great time to consider one.
CDs can be an excellent investment alternative if you are concerned about investing during market volatility periods.
Just like a traditional savings account at a bank, CDs are Federal Deposit Insurance Corporation (FDIC) insured. If the customer’s bank fails, you are guaranteed to get your money back, up to $250,000, with the full faith and credit of the U.S. government.
Please keep in mind that there are non-FDIC insured CDs available, before purchasing a CD make sure you read the account disclosure. At First County Bank, all of our CDs are FDIC insured. Check out our current CD rates here.
Locked In Rates Until Maturity Date
Financial markets can be volatile, with uncertain returns on investments. For instance, if you invested $100,000 in an S&P500 index fund in January 2022, you would have a total of $86,660 in July 2022 (As of August 2022 the S&P 500 YTD return to -17.02%).
However, fixed-rate CDs enable you to lock in fixed interest until maturity. Unlike the stock market’s volatility, a CD increases based on the Annual Percentage Yield (APY) terms.
There are other types of CDs such as variable-rate and adjustable-rate certificates of deposits, but at First County Bank we do not offer these types of CDs.
A CD ladder is a savings strategy where you invest in several CDs over time with staggered maturity dates. This will help keep some of your funds accessible in the near term while your money is locked into a longer-term CD.
Additionally, it allows for some flexibility in dealing with shifting interest rates. You can roll over your funds into a new CD or withdraw your money. Before considering this strategy, please review terms and conditions carefully.
Flexible Maturity Dates
Are you planning to move into your dream home in a year or two, go on a vacation abroad, or further your education? A certificate of deposit can be an excellent and safe way to invest your money for a defined period, corresponding to your financial goals.
CD periods typically vary from three months to five years, making them helpful in putting money down for future expenditures within the set time frame. Generally, the longer the duration, the greater the CD interest rate. The shorter the time, the more frequently you can withdraw or renew a certificate of deposit.
Remember, if you withdraw money from your CD before the maturity date, you are breaking the terms you agreed to keep your money in the account. By breaking the terms, you will most likely have to pay a fee which is called an early withdrawal penalty.
Different CD Options
There are various accounts available if you are interested in investing in CDs. Some financial institutions or banks have a no-penalty deposit certificate, which is excellent for savers who want to earn a reasonable interest rate. You can also choose to close the account early if necessary.
Other CDs also allow more than a single deposit, so if a typical certificate of deposit isn’t suitable for your present short-term goals, there are a few others you might want to consider.
Is It Worth Opening a Certificate of Deposit Account?
CDs are a great way to save and grow your money. If you do not need your money for an extended period and can commit to keeping your money for the length of the CD term, then you should consider opening up a new CD account.
Before opening an account, it’s important you evaluate your financial situation and potentially seek financial advice from a licensed professional.