One among the many bank accounts available to depositors, Certificates of Deposits (CDs) is one of the most favored. They combine less risk with more returns. CDs are basically time deposits held for a specified time frame, from 3 months to 6 years and carry a fixed interest rate.
Return on CDs
CDs are more rewarding than your regular savings accounts. Longer the duration of the CD, higher would be its interest rate be. Currently, a 3 year CD with offers you a 0.5% return. A higher percentage (1%) is offered by credit unions.
The CD rates are quoted as APY, which factors the interest compounding frequency. Interest compounding varies between banks. Some do it annually, a few of them half-yearly, and a few others quarterly or even on a daily basis.
Safety
CDs score high on safety. They are secured by FDIC up to $250,000 making them a very safe choice. It’s best to hold CDs with banks that enjoy the federal coverage. Look out for the FDIC sign at the teller window.
Types Of CDs
All of you are aware that the premature withdrawal of a CD entails a hefty penalty, which can escalate to loss of deposit as well. The best way to ensure accessibility to funds, earn returns and avoid the penalty is by laddering your CDs.
In this technique, instead of having a lump sum CD, you split it into multiple CDs of varying terms. While the long-term CDs can fetch you a higher returns, the short-term CDs will improve your liquidity.
CDs are a good option indeed. Backed by federal insurance, you can earn a solid return from CDs. Choose the right type, and take the benefit of laddering. Your savings plan will get a good boost.