When it comes to investing, many people tend to stick to the basics. While traditional savings accounts are a great foundation, opening a CD (or Certificate of Deposit) is another option that will provide a low-risk, steady return. But before you dive in, it's important to understand the basics of CD investing.
CDs are bank-issued certificates that earn a fixed rate of interest over a set period of time. Today's best interest rates on CDs, or certificates of deposit, range from around 0.9 percent to just over 2 percent. When you invest in a CD, you agree to keep your money in the account for a predetermined amount of time—or term—in exchange for a higher rate of return than a savings account.
One popular strategy for investing in CDs is to build a CD ladder. You build a ladder by investing your money in multiple CDs with terms of varying lengths. This allows you to take advantage of higher interest rates and have access to your money when you need it. For example, you could invest $10,000 in five CDs with terms of two, three, four, five and six years. After two years, you would have access to the money in the CD with the two-year term, and you could use that money to invest in a CD with a longer term and a higher interest rate.
If you don't feel comfortable investing it in a brokerage account, you may be inclined to put it into a certificate of deposit, or CD, to get a higher rate of return. CDs are a great option for people who want to save money but don't want to take on any risk.
CDs are ideal for short-term savings goals, such as a down payment for a house or a car. They are also a good option for people who want to ensure that their money is safe. Money invest in a CD is federally insured up to $250,000 per depositor, per institution.
Should you be saving your money in a high-yield account or CD? Or putting it into traditional invest like index funds or mutual funds? It depends on your individual goals and risk tolerance. risk-averse invest or anyone only looking to invest money for the short-term should think about CDs as a useful way to protect principal, while still earning a higher interest rate than a traditional savings account.
Brokered CDs are issued by banks and sold in bulk to invest firms and brokerages where they become available to invest for purchase. By buying multiple CDs at once, you can benefit from a slightly higher rate of return than you would if you bought a single CD.
CDs generally have higher interest rates than savings accounts, and they offer a guaranteed rate of return. But they also require you to keep your money in the account for a set period of time or risk losing the interest you’ve earned. It’s always wise to read the fine print and understand the terms and conditions before you invest in a CD.
Young invest can benefit from investing in CDs. “This is especially true for younger invest who are looking to minimize their risk as they develop and navigate their invest strategies,” says financial advisor Ric Edelman. “Make sure the CD you invest in is FDIC-insured for extra protection.”
Money market funds are purchased in brokerage accounts and are liquid in nature, meaning you can withdraw your money at any time. Money market funds offer higher returns than CDs, but they can also be more volatile and are not insured by the FDIC.
CDs are a great option for invest who want to earn a guaranteed rate of return without taking on any risk. Here are some of the benefits of investing in CDs:
Safe invest: As CDs don't fluctuate, you are guaranteed an interest payout.
Higher interest rates: CD accounts earn compounding interest, which means you can earn more over time.
Flexibility: CDs offer a variety of terms, from three months up to five years. This gives you the flexibility to choose the term that works best for you.
