Looking for a way to get better interest rates than a money market account, but don’t want the risk of investing in stocks? A term share certificate or commonly known as certificate of deposit (CD) may be just what you need. It’s a low-risk way to build your savings.
When you open a CD, you agree not to withdraw the funds until its maturity date, which could be anywhere from a few months to several years. You can close a CD before the term ends, but you will pay an early withdrawal penalty for doing so. CDs offer a higher interest rate than traditional savings or money market accounts because the funds in a CD can only be withdrawn after a certain period of time. Typically, CDs with longer term lengths have higher interest rates.
How do you decide which CD to invest in?
Think about the length of your CD term and how long you can afford to invest your money.
You don’t want to withdraw your money early because you’ll be charged an early withdrawal fee. If you’re saving for a short-term goal, you may want a CD with a six- or 12-month term. But if you’re building your retirement savings, consider a five-year CD.
Compare CD rates before you invest in one.
Shop around to find a high-yield CD with optimal terms for your situation. Know what the current rates are before you make your choice. Comparing rates will give you an idea of how much you’ll make over the life of your CD term. Some financial institutions will even offer you a higher rate the more products and services you have with them. GCEFCU offers a Premium Deposit Account term share, where you earn ½% higher than normal.
Explore different product options.
With a traditional CD, you deposit a fixed amount of money for a specific term and receive a predetermined interest rate. But, you usually can’t add funds to the CD prior to maturity and there are stiff penalties for early withdrawal. For more flexibility, consider a College Saver CD or a My Savings Goal account. Remember to check the terms of each type of account to see what matches your needs.
Check the minimum deposit requirements and withdrawal fees.
This is an important step because these vary between financial institutions and from CD to CD. Always make sure your CD is insured by the NCUA or FDIC.
By looking at these factors, you’ll be able to choose a CD that meets your needs and time frame. For more information about CDs offered at Gulf Coast Educators, click here, or give us a call at 281.487.9333.
Information is for informational purposes only and is not intended to provide legal or financial advice. The views expressed are those of the author.