There are tons of different options on the market these days for what to do with your savings. It can be difficult to pick the right option. You want to make sure your money is earning as much interest as possible, but is in a safe place. One popular way to save money is through a certificate of deposit, commonly referred to as a CD or time deposit.
What is a CD?
A certificate of deposit is a type of savings account in which you deposit money for a certain period of time. These types of accounts often have attractive interest rates. Time periods can vary from a few months to a few years. CD’s generally have higher interest rates the longer you keep your money in them, and if you withdraw early you will have to pay a penalty.
A time deposit is different than a money market account in that money market accounts are less restricted, allowing a certain number of withdrawals each month. Some even have the possibility of writing checks from the account, or using a debit card. Money market accounts usually have steep minimum deposit requirements.
When Considering Opening a CD, You Should Think about the Following:
Do You Want to Make Money Off of Your Money?
Time deposits are less risky than investing other ways because you are guaranteed to earn some interest on your money. Although the returns may not be as great as mutual funds, other investments don’t come with that guarantee.
When Do You Need the Money?
Saving in a certificate of deposit is a great option for individuals who don’t need their money right away. If you can afford to wait about six months up to a couple of years, a time deposit offers an incredibly safe and effective way to grow your savings.
What Kind of Interest Rate Do You Want?
CD’s will offer a higher interest rate than your typical savings account. You can use different websites to shop around for rates to make sure you are getting the best deal.
What is The Minimum Deposit Required?
Most CD’s will have a minimum deposit requirement in order to open an account. This should be one of the first details you look for when opening a time deposit.
What is The Penalty?
The higher interest rates on time deposits come with some strings attached, meaning you will not be able to withdraw the money in your account until your term has been met. If you do, you will pay a penalty. Some accounts have higher penalties than others, so be sure to find out what the penalty for early withdrawal is before opening your account.
Is it Federally Insured?
You will want to make sure that your time deposit is insured either by the Federal Deposit Insurance Corporation (FDIC), or the National Credit Union Administration (NCUA). This ensures that your money is protected while in the account.
What is Your End Goal?
When opening a time deposit, you need to consider what your end goal is. You will typically have the option to renew your time deposit after the term has ended, which offers a great way to continually grow your savings. When checking out options for time deposits, you need to go with a financial institution that you trust. Check here first for the best rates and terms possible!
Edward L. Taylor Jr currently serves as a Clayton County Business Banker with Heritage Bank. With over 15 years of experience in the banking industry, Ed can provide you with the best business products and services to serve your needs now and well into the future.
Vice President Business Banker • 770-515-7032 • [email protected]