If you’re looking to open a savings account for a long-term savings goal, a bank certificate of deposit might be an option to explore. Even in a low interest rate environment, a certificate of deposit can earn interest on your balance, which may be more than that of a traditional savings account.
What is a certificate of deposit?
A certificate of deposit, also referred to as a CD, is a type of deposit account offered by various financial institutions, such as banks and credit unions. Certificates of deposit require the account holder to deposit the funds for a specific period until a set maturity date.
This type of account pays a fixed interest rate for a set period of time. The interest rate for a CD can vary by the amount of the deposit or the length of the term, typically between three months and five years. If you withdraw your funds before the maturity date, you may encounter a penalty.
How can you open a certificate of deposit?
After choosing the type of CD you’d like to open, you’ll need to contact the financial institution. Depending on your bank, you may be able to open a certificate of deposit in person at a branch, over the phone or online. Be sure to contact your financial institution to verify which documents are needed to open a certificate of deposit account.
Unlike a savings account, you can’t continually add money to a CD. With this account, you typically make a one-time deposit when you open a CD and keep it in there until the term ends. You can make this one-time deposit by linking another bank account and transferring money, mailing a check or depositing a check or cash in person at a branch.
Certificate of deposit benefits
Certificates of deposit can be useful for saving and earning interest on money that you won’t need immediately, but they also come with other potential benefits:
- There are typically several term options to choose from.
- Your deposit and earnings from CD interest are protected from market fluctuations.
- Your money is FDIC insured up to the maximum amount allowed by law.
A certificate of deposit may be a good option if you’re looking for a way to save your money, earn interest and help protect your money from market volatility. Reach out to your financial institution to learn more.
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