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An important part of setting savings goals is choosing where to keep your money. If you are exploring savings options, you have likely encountered Certificates of Deposit*, or CDs. But is this financial tool a smart choice? And are the current CD rates worth it your time and money? In this blog, we'll unpack the pros and cons of CDs and help you decide whether opening one fits your savings goals.
Let’s have a quick refresh on the basics of certificates of deposit. A CD is a savings account where you hold a fixed amount of money for a set length of time, ranging from a few months to five years. When you open a CD account, you are essentially setting aside your money until a later date (the “maturity date”) with the promise of receiving a specific interest rate in return. When the waiting time is over, you will receive your initial deposit plus the money you have earned from interest.
You can learn more about certificates of deposit and how they work in our previous blog.
Every savings strategy comes with its own set of advantages and disadvantages. Before opening an CD, it is wise to understand the pros and cons.
Opening certificates of deposit can be an excellent choice in several ways, especially in the following situations:
If you have short-term savings goals: Perhaps you are saving for something like a down payment on a house, vacation, new car, or even a wedding. You can choose CDs with maturity dates that align with the timing of your financial needs. This way, you can earn a little extra interest until it’s time to cash out and make those long-awaited purchases!
For keeping your money out of reach: Placing your money in a CD can act as a safeguard from impulse buys. Since CDs have penalties for early withdrawals, this serves as a hurdle that discourages you from making unplanned purchases, allowing you to stay on track with your financial goals. Additionally, this provides you with the time to carefully consider how you want to use your money in the future, whether that involves investing, saving, or planned spending.
Preserving your money without risk: Investing with CDs can be a smart choice for those who prefer avoiding stock market risks. If you are seeking a secure way to grow your money and are comfortable having it tied up for some time, CDs can be a great option.
When the interest rates are high: Opening a CD is a good idea when you can secure high interest rates for your savings. We can’t predict how interest rates will look in the future. So, it's smart to grab the good rates while they're available. This way, you'll have a guaranteed way to earn more from your money later on.
Interest rates are currently at their peak, making it an opportune time to consider opening a CD account or setting up a CD ladder. Remember, these favorable rates won't last much longer, so it's wise to seize this chance to secure your financial future.
Are you shopping for the best CD rates? At Armed Forces Bank, we're offering high-yield options, including 9-month CDs at 5.25% Annual Percentage Yield (APY)* and 13-month CDs at 5.40% APY*. Explore our various term options* to find the best fit for your savings goals!
*A penalty may be imposed for early withdrawal. The Annual Percentage Yield (APY) is accurate as of 09/19/23. CD rates are subject to change at any time and are not guaranteed until CD is opened. Fees charged to the account could reduce earnings on the account.