![]() ![]() Other options include a bump-up CD, add-on CD and step-up CD. For instance, you may choose a no-penalty CD which lets you withdraw your money without paying a fee. There are several types of CDs to choose from. ![]() You can use a CD calculator to factor your term, deposit and APY to determine your final balance. As a bonus, you’ll know exactly how much money you’ll earn, Juodikis said. If you leave the money in the account until the term ends, you’ll be rewarded with a guaranteed return based on the rate when you open the account. And if you open a CD with an online-only bank, your APY may be even higher since these banks have fewer overhead costs, which means some of the savings get passed down to you in the form of above-average CD rates. CDs typically come with higher annual percentage yields, or APYs, than savings accounts because you’re locking your money up with the bank for a set period of time. Regardless of what happens with savings rates next, your CD rate is typically fixed for the duration of your term. Instead, your funds may move to the new bank that takes over, or you’ll get all of your money back from the FDIC or NCUA. That means that if the bank fails, you won’t lose your deposit or any interest you earned - so long as it’s under this amount, said Juodikis. If so, your CD is protected for up to $250,000 per depositor, per bank. Pros of CDs Federally insuredĬDs (or share certificates, for credit unions) are considered safer investment options - as long as the bank or credit union is insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. If you don’t withdrawal your funds during this period, they may be automatically rolled into a new CD. Many banks have a grace period that begins after your CD term ends. Or you can roll the funds into a new CD with a new rate and term. When your CD term ends, you can withdraw the balance (including interest) without paying a penalty. If you need your cash sooner, you may pay an early withdrawal penalty, which costs between a few weeks’ to a few months’ worth of interest, depending on the bank. CD terms typically range from six months to five years, depending on the type of CD and your bank. You can choose the type of CD and the term that works best for you, but you’ll need to keep the money in the account until the term ends to earn all the interest. Most CDs work like this: You make a one-time deposit and earn a fixed rate on your savings. But it’s important to understand how they work and their key benefits and drawbacks before opening a CD account. With rates higher than we’ve seen in recent years, there’s a lot to love about CDs. ![]() Plus, the rate you lock in when you open the account is the rate you’ll have for the term - even if rates go up. And most CDs only allow a one-time deposit - which can be frustrating if you want to add money over time. Most CDs come with early withdrawal penalties, making them less flexible than high-yield savings accounts. ![]() “CDs can be a good way to diversify your portfolio and reduce risk,” said Brandon Juodikis, certified financial planner and founder of BRJ Wealth Management.īut a few drawbacks may make you wonder if it’s the right place to park your cash. And since CDs are usually insured, you won’t have to worry about the risk of losing your hard-earned savings. When you open a CD, you lock in a fixed interest rate for a set time frame. A certificate of deposit, or CD, offers a low-risk way to help grow your savings, particularly in today’s high-rate environment - but is it the right savings vehicle for your money? ![]()
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