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FNBO
Cashology®Nov 01 2023
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Article | Read time: 5 minutes
Looking to supercharge your savings without taking on a lot of risk? Enter the Certificate of Deposit (CD) savings account! It's a great big boost for your savings! Today we'll break down what CD savings accounts are, how they work, their perks, and what you need to consider before opening one.
What Is a CD Savings Account?
A Certificate of Deposit (CD) is like a savings account with a twist. You deposit a specific amount of cash for a set time, known as the CD's term. During this time, your money is locked away, and you can't touch it without facing penalties. But in exchange for your patience, you get a higher interest rate compared to a regular savings account.
The Basics
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Getting started with a CD. You pick a bank or credit union that offers CDs. Then, decide how much money you want to park in the CD and for how long. Terms can range from a few months to years.
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The interest rate. You usually get a higher interest rate, but they can still vary based on your deposit amount and chosen term. Generally, if you go long-term, you score a higher interest rate. Be sure to shop around for the best CD rates.
- Locking in your CD. Once you lock in the CD, your cash is off-limits until it matures. Early withdrawal and you'll lose some of those hard-earned interest gains.
- How your interest works. The CD might give your interest monthly, quarterly, annually, or when it matures. You get to choose how you want your interest: reinvested, paid out, or put into another account.
- The maturity date. When your CD reaches its maturity date, you have a grace period. Use it to make changes and take your cash. If you don't make any changes, your bank may renew it for another term.
What are the Pros of a CD Savings Account?
- CDs can be a major boost to your savings since they offer a higher interest rate than regular savings accounts.
- They're backed by the Federal Deposit Insurance Corporation (FDIC), so you can have peace of mind.
- With a fixed interest rate and set term, you can predict your earnings at maturity.
- Early withdrawal penalties can take away any temptation you have about early withdrawal.
Before You Dive In
There are a few things to consider:
- Make sure the CD's term lines up with your money goals and you are alright with the term.
- Make sure you know what the penalties are for early withdrawal. They can vary, and you might lose some interest earnings.
- Decide how (and how often) you want those interest payments and find a CD that serves them your way.
Other Alternatives
If you're hesitant about getting a CD, there are other great savings accounts that may fit your financial habits better. A Flex Savings account can give you the flexibility you need. You can also consider a high yield savings account or a money market.
CD savings accounts can be a savvy decision for your financial health — they offer secure, higher interest rates while adding predictability and restraint to your savings game. Just remember to pick the right term, avoid the penalties, and choose an interest payment that works for you. When you use CDs strategically, they become a great big boost to your savings!
If you have questions about setting goals and opening a savings account, a Personal Banker from FNBO would be happy to answer them. Give us a call today.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.