Whileand the rise to fight it has generally been negative for most Americans, the news hasn’t been all bad. While rates have risen dramatically for mortgage purchases and mortgage refinance, for example, they have also jumped exponentially for products like And accounts. Now is a particularly good time to pursue these options.
CDs, in particular, offer account holders a unique opportunity to protect and grow their existing savings. But they don’t work like traditional savings accounts. To get the most out of it, account holders should first understand a few important factors. We’ll break down three important things to know about CDs in this article.
If you think you could benefit from opening a CD, start exploring your options here to see how much more you could earn.
3 things to know about CDs
Here are three important things to know about CDs.
Interest rates are higher
tend to be higher than those offered with traditional savings accounts. This is especially true now in our current rate climate. The interest rate on a savings account currently fluctuates between 0.33% and 0.37%. But an interest rate for a CD is now around 3.5% to 4.5% or more, depending on the lender. This means that you would make exponentially more money by leaving your money on a CD rather than keeping it in a regular savings account.
How much more money would you earn? Let’s take $1,000 for example. After 12 months in the regular account, you would have a total of $1,003.30. But with a CD, that $1,000 would grow to $1,035.00 at a rate of 3.5%. The higher the rate, the more you will earn. You are essentially leaving money on the table by keeping it locked away in a regular account. By moving it to a CD, you can start earning more immediately.
So check your CD options here now and start earning more interest.
Your interest rate is locked
Unlike high yield savings account rates which are adjustable and will react to the market (favorable or not), CD interest rates are locked in. So the rate you secure when you open your CD will be the same rate your account will mature with, regardless of what happened in the pricing environment during the term of your CD.
While this can generally be favorable when rates are high, as they are now, the timing of a CD opening is important. Ideally, you’d want to open an account when rates are high and you can earn as much interest as possible – but you also don’t want to wait too long and lose the window of opportunity. It helps to pay close attention to the market and overall pricing environment and then proceed from there. If you’re worried that rates will rise again in the short term but don’t want to lose the advantage of opening an account now, you can split your savings in two – one CD at the current rate and one at a higher rate. rate all the way.
You can pay a penalty for early withdrawal
One of the reasons banks and credit institutions offer higher interest rates for CDs is because the money is not available to the account holder. Account holders are essentially rewarded for placing their money in one of these accounts via a higher interest rate. However, this does not mean that you will not be able to access your funds if you wish. But if you withdraw them before the CD maturity date, expect to pay a substantial penalty for your actions. The amount you pay will depend on the lender and other factors, but it could be large enough to wipe out all or most of the interest you’ve earned over the previous weeks and months. So make sure you know what you’re getting into before putting all (or most) of your money into a CD.
The bottom line
A Certificate of Deposit (CD) account is a smart way to protect and grow your money. Interest rates are exponentially higher than what can be secured with a traditional savings account and the rate is locked in for the duration of the CD – regardless of any adverse rate activity that takes place during it. That said, account holders should be careful how much they deposit into one of these accounts, as they will likely pay a significant penalty if they wish to withdraw it before the CD has matured.
You can find out more about CDs – and how much more you could earn – here now or via the table below.