A certificate of deposit (CD) is a time deposit account that typically has a higher interest rate than a regular savings account or money market account. A time deposit account is an account that gets assigned an interest rate and a term. These accounts are used for saving whether you have short-term or long-term goals. When opening a CD, you make an initial minimum deposit, and the funds earn a fixed interest rate until the maturity date. The maturity date is when the term is over, and you can have access to your funds. Once the maturity of the term comes, you can either withdraw the funds or roll it over to another term and add to it. The key thing to note is that if you were to withdraw the funds before the term is up you can be subject to a penalty.
One of the benefits of having a CD is that you could earn money at a faster rate than it would be if your funds were in a regular interest-bearing account. This allows you to save money in a shorter period. Another benefit that can be considered is that you can store away funds and not be tempted to use them. CDs are a secured product and pose no risk of losing money.
Terms can vary from short terms to long terms. Typically, the shortest term is 6 months and that can stretch to longer terms, like 60 months. Once the term is matured, you get a grace period to decide what you want to do with the funds. As mentioned above, you can take the money or can roll it over and add more if you wanted to. You want to make sure that you decide what to do with the funds within that grace period because doing nothing could result in an automatic rollover and lock into another term. If that happens, you could face a penalty if you tried to withdraw the funds.
A CD is different from a savings account, in the sense that you can’t choose when you take money out or put money in. However, some financial institutions sometimes offer “special” types of CDs that allow for a one-time rate bump or allow for additional deposits. These “special” CDs are usually offered for a limited time and aren’t the norm when talking about CDs. A CD is an agreement with you and the financial institution and once opened there is no activity on the account, other than the earned interest.
If you are wanting to put some savings away and don’t need the funds right away, a CD is a good option to look at. In most cases putting your money in a short-term CD is better than having it sit in savings account earning little interest. CDs are a great way to earn more money in a shorter time.
If you are not sure if a CD is your best option, stop into a branch and sit down with our banking associates. We can help you find the right term for you!
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