A certificate of deposit (CD) is a savings vehicle used to grow your money over a predetermined amount of time. It’s also referred to as a “timed deposit,” which means that once you select the length of your term, you’re required to keep your money there until the scheduled period is over.
Most CDs are insured by the Federal Deposit Insurance Corporation (FDIC), which means that your money is backed by the FDIC and will be returned to you even if the bank fails. The money is backed dollar-for-dollar including accrued interest, and is typically insured for up to $250,000. Make sure your CD is FDIC insured before investing in it to make sure your money is safe.
The length of time you choose to invest your CD is known as the "term length". Typically term lengths range between a few months to ten years, and banks usually offer higher interest rates for longer term lengths.
Removing the money earlier than the specified time you originally committed to can result in penalties. Penalties can vary based on the length of the term.
As with savings accounts, the intent of a CD is to set aside money that you won’t need in the near future so it has time to accumulate interest over time. CDs usually offer fixed interest rates, which makes them a more worthwhile investment if your goals are long-term. Because you’ll be penalized for withdrawing money from a CD before the term length is up (aka, before the CD matures), savings accounts are typically best for those who wish to have access to their money while they save, and CDs are a great option for those who don’t need access for a while.
Laddering is a savings strategy many use to enhance returns on CD investments without tying up money in one or two long term CDs. The idea is to invest some money in both short term and long term CDs to allow you periodic access to funds as the CDs mature while also maintaining a long term savings strategy.
If you’re interested in investing your money in a CD or have any questions about CDs or savings accounts, don’t hesitate to give us a call or stop by your local branch to speak with a dedicated member of our team today.