3 Benefits of Putting Money on CDs

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Banks usually pay a higher rate for a Certificate of Deposit (CD). Learn other benefits of putting your money on CDs.

Key Point

• A Certificate of Deposit (CD) is considered one of the safest savings options.
• CDs can offer higher interest rates than savings accounts and more predictable growth than the stock market.

The stock market has been very volatile due to record high inflation and Russia’s invasion of Ukraine. Savings accounts only return 0.06% on average. Those looking for a safer investment with higher returns can consider a Certificate of Deposit (CD). The interest rate for a 2-year CD is 0.18%, three times his average savings account.

A CD is a savings account that holds a lump sum for a period of time. The issuing bank will pay interest based on the term of the CD. Duration is usually from 1 month to 5 years. At the end of the term, the bank will return the money originally invested plus interest. Given today’s volatile environment, here are three benefits of investing your money in CDs.

CDs are safe

A certificate of deposit is considered one of the safest savings options. CDs purchased through federal insurance banks are insured up to $250,000. As long as you purchase your CD account through an FDIC-insured bank or NCUA credit union, you’ll be covered even if your bank goes bankrupt.

However, it is important to understand that the $250,000 insurance limit is for all accounts in your name at the same bank, not per CD or account. If you have more than $250,000 in one bank, we recommend spreading your funds across multiple banks. It’s also a good idea to shop around to find the best CD rates.

CDs can offer higher returns

Instead of keeping funds locked on CDs for a period of time, banks offer higher interest rates than savings accounts. Generally, the longer the term of the CD, the higher the interest rate you will earn.

However, some banks offer promotional CDs with shorter durations and higher rates. As of March 4, the Pentagon Federal Credit Union is offering his two-year term CD at 1.35% of him. This is 7.5 times the national average.

CD interest rates also depend on the current interest rate environment. With the Fed considering rate hikes in the coming months, the bank may also raise his CD rate.

CDs can provide predictable returns

Interest rates for CDs are set for the entire term. So you can easily decide how much interest you will receive. Unlike the stock market where you can make or lose money, CD money grows predictably.

Some banks also offer variable rate CDs, allowing the rate of the CD to be adjusted a limited number of times.

Depending on your bank and type of CD, you may be able to withdraw money from your CD at any time. However, usually he is charged interest for 1-2 months.