When it comes to investing, sometimes it’s good to find a middle ground. Perhaps you’re looking for a way to earn interest on your savings, but you don’t want to take on the risk of investing in volatile stocks.
A certificate of deposit—called a CD for short—might be the perfect Goldilocks solution you’ve been searching for.
What is a CD?
A CD is a type of savings account that lets you steadily earn interest on your money. By agreeing to keep your money in the account for a set period of time—anywhere from one month to five years—your investment earns a favorable interest rate.
How much will I earn on money in a CD?
CD interest rates are much better than the rates for general savings accounts.
For context, a traditional savings account offers an average interest rate of .09 percent, according to FDIC data from December 2019. A CD, on the other hand, can offer rates up to .97 percent. That means you could earn nearly eleven times more interest by opening a CD, rather than keeping your money in a general savings account.
CDs are also considered one of the safest savings options, according to the U.S. Securities and Exchange Commission. Your money earns interest without being exposed to the risk of the stock market.
What kind of CD is right for me?
Each CD comes with its own terms and interest rates. Check with your bank to see which products they offer and which CD best fits your lifestyle. Keep in mind, many CDs also require a minimum deposit—at WaterStone Bank, you can open a CD with as little as $100.
How can I maximize my return on a CD?
Shop around for CDs and select one that fits your goals. If you can set aside a large sum of money for a long period of time, you’ll be able to take advantage of higher interest rates, which means that over time, you’ll earn more money.
However, if you need access to your money soon, don’t open a five-year CD just because of a tempting interest rate. It’s better to earn a modest return on a CD with a short commitment than to spread yourself too thin.
Whether you’re working towards a short-term financial goal or growing your long-term savings, a CD can be a safe, reliable way to make your money work for you.
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