Discover the little-known benefits of certificates of deposit
Certificates of deposit (CDs) have many advantages. First of all, investing in CDs often yields higher returns than investing in high-yield savings accounts. You can also purchase an FDIC-insured CD, giving you peace of mind. This means there is absolutely no risk of losing your money.
But while most people are aware of these benefits, there are a few less well-known benefits. Here are some things to consider when deciding if CDs are right for you:
1. CDs help keep your money where it belongs.
When you buy a CD, you generally need to keep your money in the CD for the life of the CD to avoid being penalized. This is often considered a disadvantage of CDs compared to savings accounts. That’s because savings accounts allow you to withdraw money whenever you want.
But to some people you have Having money in a CD may not seem like a big deal on the surface, but it’s actually a privilege. If you’re not good at managing your money and unwilling to leave your savings in the bank, you’re more likely to never actually touch your funds when there are real financial consequences for not doing so. This may make it more likely that you will achieve your goals.
Let’s say you’re saving for a down payment on a home you plan to buy in a little over two years. If you choose a two-year CD, you won’t be able to withdraw cash without penalty until you’re ready to buy. However, if you have your money saved without the consequences of withdrawing it early, you may be tempted to “borrow” out of your down payment funds when there is something you want to buy, possibly without giving it back.
If you’re having a hard time resisting the temptation, try putting some money in a CD and see if it works.
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2. CDs can be a steady source of income.
Because the money in a CD must be locked up for the life of the CD, many people mistakenly believe they will not receive the benefits of a certificate of deposit for months or years until the CD term ends. But that’s not necessarily the case.
Some CDs allow you to withdraw the interest you earn at any time without penalty. Because of this, you can buy a CD or two (or more) and receive a regular monthly income from them that you can spend or do as you wish.
Barclays is an example of a bank that allows this. You can request recovery of accumulated interest. without You can pay a monthly penalty and deposit the money into a Barclays savings account or a verified external account.
Because investing in CDs guarantees interest, the income you earn using this approach is very predictable. If you need money, you can visit regularly, which is a huge plus.
3. CDs allow you to take a very easy approach to investing.
When you invest in a CD, your interest rate is guaranteed for the duration of the CD. This is different from a high-yield savings account, where the APY can change depending on market conditions.
You actually don’t have to pay attention to this investment at all, because you know exactly how much money your CD will earn you and you don’t have to worry about that changing. You don’t have to watch for interest rate cuts or worry about having to move your money to another savings account that pays a better interest rate if your account terms change. And unlike stocks, you don’t have to worry about losing your money.
If you just want to put money in an account, not have to think about it much, and know that you’ll get predictable returns, CDs are a good choice.
These little-known benefits may be enough to convince you that investing in CDs is right for you. Check out some of the best CD rates we’ve found to see if this is an investment you’d like to consider.
This savings account is FDIC insured and can earn 11 times the bank’s earnings.
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