CDs (Certificates of Deposit) – Savings at Higher Returns Than Traditional Savings Accounts
What is a certificate of deposit?
How does a CD work?
Different types of CDs
- Add-on CDs, which allow you to add additional funds into the CD throughout its term.
- Brokered CDs, which are purchased through a brokerage firm that can review multiple financial institutions to find you the best rates.
- Callable CDs may tout higher interest rates but may be "called" by the bank before maturity is met, thereby risking your rates.
- CD Ladders that, like my grandpa used, have varying term lengths so you have access to funds throughout the long term, also known as laddering.
- Jumbo CDs for those with at least $100k to invest.
- Long-term CDs that have terms of 1 year or more with higher APY the longer you set your term.
- No-penalty CDs that provide lower interest rates but allow you to take out funds before maturity without penalties.
- Short-term CDs that offer terms from 3 months to 1 year.
- Step-up CDs that provide you an annual opportunity to "bump up" your interest rate, should they go higher than your current rate.
- Variable-rate CDs that can rise with rising interest rates rise or fall with dropping interest rates.
Best CD Rates
Marcus by Goldman Sachs
Best CD rates comparison
|Marcus by Goldman Sachs||N/A||0.15%||0.65%||0.55%||N/A||N/A||N/A||0.55%||0.55%||0.55%||0.55%||0.60%||0.60%|
Pros and Cons of CDs
- Low-risk. Of the various investment products you have at the ready, this is one of the lowest risks. They are also FDIC-insured for up to $250,000.
- High-yield savings. CDs have higher return rates than regular savings accounts found at brick and mortar banks and most online banking institutions (both of which offer CDs).
- Variety of options. As with any savings accounts, the amount of money you'll earn depends on the period of time in which you can collect an amount of interest. You can find 3 to 6 month CDs to 5 or more years before a term ends.
- Penalty fees. If you need to withdraw your funds before the term ends you will pay high fees and lose the rate of return expected at the deposit.
- Not quite high-yield. While the APY is higher than a regular savings account, CDs as an investment earn less than investing in an IRA, 401(k), or the stock market.
- No access. Unless you are willing to pay those fees, your money is not yours to access until a term ends.
The bottom line
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