Maximize Your Savings with Low-Risk CDs: Learn What to Consider Before Investing
Certificates of deposit (CDs) are an increasingly attractive investment option in the current market, offering a guaranteed return of 4% or more — some even offering yields of up to 4.75%.[0] Whether you’re looking to capitalize on your savings potential, generate income in retirement, or diversify your investment portfolio, CDs offer a low-risk way to do just that.[0] However, there are some things to consider before you open up a CD as the terms of the agreement are specific.[1]
When you open a CD, you’ll determine the length of the fixed “term” that will be established — from three months to a number of years — and the money will be locked for that period of time.[1] CDs provide a higher interest rate than a regular savings account, thus allowing for a greater return on your investment.[2] However, you cannot touch the money until the term is complete, or you’ll incur a penalty for an early withdrawal. Liquid CDs, which offer flexibility in accessing the original deposit, are not as advantageous as traditional CDs in terms of interest rates.[1]
Minimum deposit amounts vary from bank to bank.[3] Generally, a bank will require you to deposit a minimum of $1,000 when opening a CD.[1] However, some banks like Ally Bank offer CDs with no minimum deposit.[1] Additionally, the longer the term, the higher the interest rate.[4] For example, Ally Bank’s 3-month CDs pay 4.10% APY compared to their 10-year CDs, which pay 4.60% APY.
Furthermore, if you withdraw your money early, you will be subject to a penalty fee. For CD terms of three months or less, the penalty is 60 days of interest; for CD terms of 3 to 12 months, the penalty is the greater of 50% of the interest that would have been earned on your funds if held to maturity or 1% of the amount withdrawn; and for CD terms of more than one year, the penalty is the greater of 50% of the interest that would have been earned on your funds if held to maturity or 3% of the amount withdrawn.[5]
0. “‘You may want to think about a CD.’ Some CDs pay 4.5% or more right now. Should you get one?” MarketWatch, 10 Feb. 2023, https://www.marketwatch.com/picks/you-may-want-to-think-about-a-cd-some-cds-pay-4-5-or-more-right-now-should-you-get-one-01675975850
1. “Best CD Accounts of February 2023” GOBankingRates, 7 Feb. 2023, https://www.gobankingrates.com/banking/cd-rates/best-cd-rates/
2. “Best 3-Year CD Rates for February 2023” GOBankingRates, 8 Feb. 2023, https://www.gobankingrates.com/banking/cd-rates/3-year-cd-rate/
3. “BMO Harris CD Rates February 2023 – Forbes Advisor” Forbes, 14 Feb. 2023, https://www.forbes.com/advisor/banking/cds/bmo-harris-cd-rates/
4. “The Best 3-Month CD Rates of February 2023” Business Insider, 10 Feb. 2023, https://www.businessinsider.com/personal-finance/best-3-month-cd-rates
5. “State Farm CD Rates February 2023 – Forbes Advisor” Forbes, 14 Feb. 2023, https://www.forbes.com/advisor/banking/cds/state-farm-cd-rates/
