If you’ve made up your mind that you’re going to invest some money this year, you might be considering a CD, or certificate of deposit. CDs are commonly viewed as a safer alternative to potentially higher-yielding investment vehicles such as stocks or mutual funds, because fixed-rate CDs have a set, guaranteed interest rate, and they’re protected by FDIC insurance. Bank5 Connect CD accounts are actually covered by both FDIC and DIF insurance. The DIF coverage at Bank5 Connect ensures that all deposits are 100% insured, even past traditional FDIC coverage limits.
Not surprisingly, the safety of CDs, coupled with the fact that they generally offer higher interest rates than traditional savings accounts, makes them popular choices for saving money. If you’ve chosen a CD as one of your investment tools, it’s just a matter of deciding how long you want to tie up your funds. With CDs, you have several fixed term lengths to choose from. They can range from as little as 3 months to up to 10 years. The term you select will depend on your unique financial circumstances and needs.
When considering CDs, it’s important to note that they’re intended to be held until maturity. When they mature, you have the option to withdraw the money, along with any accrued interest, but if you withdraw any money before the entire term length is up, you’ll usually be hit with an early withdrawal penalty fee. The policies regarding early withdrawals vary, so it’s always wise to check with your financial institution prior to opening an account to see what kinds of penalties you could incur.
To avoid early withdrawal penalties, it’s a good idea to choose a CD term based on how long you think you can go without needing access to the money. If you anticipate needing to tap into the funds within a few months, then a 3- or 6-month CD will probably be the way to go. Keep in mind however, that typically the shorter the term length, the lower the interest rate.
Generally, multiple year terms offer the highest CD rates. If you know you won’t need to tap into the funds for several years, a multi-year term could be a good fit, but it’s a good idea to consider current interest rate trends and predictions first. Think about it. How angry would you be if you locked in a 2.00% rate on a 5-year CD only to find that the rate on that exact CD increased to 2.50% a few weeks later? Once you’ve opened a fixed-rate CD, your rate won’t change, even if the bank starts to offer the same CD at a higher rate. To help avoid this kind of scenario, it’s a good idea to stay on top of interest rate news, so you have some kind of idea of when rates could fluctuate.
Another consideration with CDs is how often you’ll be looking to stash away more money. Generally, once you open a CD you can’t add money to it until it matures. Therefore, if you think you’ll want to add money every few months, a shorter term length might be best. Another option is to choose an add-on CD. Add-on CDs are special fixed-term CDs that allow you to deposit additional funds throughout the entire term length. These types of CDs can be hard to find, but Bank5 Connect does offer one. Bank5 Connect’s 24-Month Investment CD allows for additional deposits at any time, in any amount. Plus, there is only a $500 minimum deposit required to open an account, and no monthly maintenance fees.
If you have enough money to open several CDs, another way to allow for ongoing deposits is to invest in multiple CDs with various term lengths. This approach is known as CD laddering. With CD laddering, you end up with a collection of CDs that will mature at regular intervals. With a CD regularly reaching maturity, you’ll regularly have an opportunity to make additional deposits, or withdraw your funds.
No matter what CD term length best suits your needs, just remember to read all of the fine print associated with the account before opening one. This will help you to understand exactly what you’re getting into, and help you to avoid costly early withdrawal penalty fees. And, keep in mind that it’s always a good idea to consult with a tax adviser or financial professional before making any major investment decisions!