Certificate of deposit (CD) accounts can be a powerful way to potentially earn on your savings. But CD accounts come in various shapes and sizes, each one seemingly tailor-made to suit different priorities and financial goals. So, how do you choose the right CD for you? With the right questions in mind, finding the best CD account for you might just boil down to discovering what those priorities are for you. Let’s explore some key considerations that may help you find the very best CD account to possibly assist you in meeting your financial goals.
Consider the CD term period
A CD account’s term determines how long your money stays deposited. Banks and credit unions typically offer a range of CD terms, from a few months to several years. Depending on your financial goals and when you need to access your funds, can help you decide which CD account will work for you.
For some, short-term CD accounts might be perfectly suitable. For others, a longer-term CD may be ideal. A young professional looking to save up for a summer trip, for example, might favor a six-month CD. A parent looking for the best CD account to help fund a child’s future college tuition, on the other hand, may opt for a longer-term CD. It’s about matching your CD to your goals and timelines.
Additionally, some CD accounts may have minimum opening deposit requirements to consider. Ensuring you’ve fully understood the terms and conditions of your CD may help guide you to a CD that conforms to your financial circumstances.
Look at interest rates
A CD’s potential earnings may be top of mind for many customers. Higher interest rates generally mean higher earnings but flat interest rates may require you to do some math and figure out the potential earning. Compounding frequency, or how often interest is paid on previously accrued interest, can affect the overall earnings. The annual percentage yield (APY) is a metric that considers your interest rate and how frequently it compounds. When looking for the best CD account interest rates, evaluating a CD’s APY and comparing rates from different institutions may help leave fewer stones unturned in the quest for the right CD.
Understand the fees
Like many bank accounts, CD accounts may come with certain fees. One of the most notable is the early withdrawal penalties for accessing funds before the term ends. Understanding these fees, how they work and how they could impact your earnings may help prevent unexpected surprises later. Reach out to your bank or credit union for more information on the fees associated with CD accounts.
Know the CD account types
There are several types of CDs available, each with its own characteristics and mechanics. Some may conform better to certain savings strategies than others. For example, a liquid CD that allows penalty-free withdrawals in exchange for a lower interest rate may be a good fit for individuals who value their flexibility over potential earnings. Understanding the features of different account types can help you find the best CD accounts for your savings plan.
Look for additional features
Some financial institutions will occasionally offer additional incentives or perks for opening a CD account, such as account opening bonuses or higher interest rates upon meeting certain conditions. These promotions might be a way to boost earnings, but it’s important to fully understand their terms and conditions before taking advantage of them. Keeping an eye out for promotions like a bank sign-up bonus or CD-related offer can be helpful when looking for the best CD account. Contact your bank or credit union for more information on any additional features or incentives.
Consider insured institutions
FDIC Insurance for banks and NCUA Insurance for credit unions covers deposit accounts up to $250,000 per depositor, per insured financial institution for each account ownership category. Therefore, choosing a CD account at an insured bank or credit union may provide you with some assurance that, should the financial institution fail, your money has some protection.
Consider CD ladders
Some financially savvy savers may choose to build a “CD ladder,” a strategy that involves spreading your total deposit across multiple CD accounts of varying term length. By staggering your CDs this way, a CD ladder may help leverage the flexibility of shorter-term CDs while reaping the benefits of the higher interest rates typically associated with longer-term CDs.
Picking the best CD account for you may be the first step in bolstering your savings with these potentially valuable financial tools. Understanding key considerations like your financial goals and personal preferences alongside the basics of CD accounts can help in finding a CD that conforms well to your personal goals and financial circumstances. This basic framework may help you start maximizing your savings with the best CD account for you!