Benefits Of A CD Account

Back to blogPosted by First National BankPosted on Banking 101

Opening a Certificate of Deposit (CD) is a flexible, safe and predictable way to grow your money.

With a CD, you have no risk of losing any of the principal, unlike other types of investing. Once you lock in a term and interest rate, you’ll know exactly what to expect when the CD matures. When you invest in a CD with a federally insured institution, you can be confident that your investment is covered.

Traditional savings accounts generally have lower interest rates than a CD account, so you can earn more on your money with a CD. There are penalties for closing your account before the date of maturity, so be sure you understand those rules and restrictions.

Start with deciding how much money you’d like to invest. This should be money you’re not likely to need during the term of investment, as there are penalties for closing the account early. You can open a CD account for as little as $100, with terms starting at 1 month. There are also High Yield CD accounts for amounts above $100,000, with much higher interest rates, but they also carry higher restrictions on early withdrawal. Some accounts allow you to “bump” up the rate once during the term, if interest rates have gone up during the term. Ask your banker about the current rates, and any CD special they might be offering.

Creating a CD “ladder” is a great way to invest and earn more on your money, but also allowing you periodic access to your funds. If you have $5,000 to invest, you might want to put $1,000 each in a 12-month, 24-month, 36-month, 48-month and 60-month CD’s. At maturity each year, you will have access to some of your cash, if needed. If you don’t need it right away, you can roll it over to a new CD.

Talk to your banker about the benefits of opening a CD account, and watch your investment grow!