Mastering Certificates of Deposit: A Practical Savings Guide (2024)

FAQs

What is the best way to make money from CDs? ›

The best way to maximize your CD earnings is by looking for the highest APY (annual percentage yield). So, before you open an account, it's a good idea to look around to see which bank or credit union will offer you the best CD rates. If you're lucky, your current bank will have competitive rates.

To maximize your CD earnings, consider staggering your CDs with a ladder, or getting a no-penalty CD. Try not to withdraw interest, as that can reduce your CD's stated APY. To get the best CD rates, consider locking into a CD now before APYs start to drop.

Traditional certificates of deposit (CDs) offer a fixed interest rate for a fixed term without the ability to withdraw or add to the principal. Specialty CDs include bump-up, add-on, no-penalty, jumbo, and individual retirement account (IRA) CDs.

Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.

One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal. “During times of uncertainty, liquidity is often paramount.

How much you earn on a $100,000 CD varies, depending on the APY. For example, if your CD has a 5% APY, you'd earn $5,000 after one year.

You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.

The highest certificates of deposit (CDs) rates today are offered by Merchants Bank of Indiana (5.92%), First Federal of Lakewood (5.61%), Maries County Bank (5.51%) and Shoreham Bank (5.50%). You can see the full list of the highest-paying CDs here.

A CD ladder can help you build a predictable investment return. It also provides the potential to earn better returns than you would with a single CD and the ability to access a portion of your savings each time a CD matures.

Keep saving and, when you have another chunk of money, open another CD that matures around the same time as the other two. Continue repeating the process until your CDs reach maturity, and you can cash them all out around the same time to cover your large purchase.

Is it better to have multiple CDs? ›

The bottom line

There's no standardized number of CDs that's perfect for everyone. When you choose how many CDs you should open, consider what you're saving money for, insurance limits and your savings strategy. And, some experts say you shouldn't focus on the number of CDs you open.

Choice of issuer: If you go to your local bank to purchase CDs, you're limited to the one issuer. However, brokered CDs allow you to choose from banks all over the United States, and because FDIC insurance protects up to $250,000 per bank, it's a more convenient way to invest more and keep yourself insured.

Jumbo CDs work the same way as regular CDs but with larger minimum deposit amounts. Jumbo CDs are often purchased by institutional investors with large sums of money to manage and need to put money into safe investments like CDs to protect their investors against risks.

For current customers and people looking for longer CD terms, Chase CDs could be a good long-term investment, but the rates are still generally lower than those at most online banks.

Limited Access. A CD is not a savings account, meaning you can't take out money whenever you need it. Once you've decided on a term length, you have to leave your funds untouched until the term end or maturity date.

What is the biggest disadvantage to investing in a certificate of deposit? Your money is not readily available without heavy penalties.

Some CDs aren't FDIC-insured, so they are a greater risk. Also, there are opportunity costs if you lock up money in a CD and interest rates rise or inflation outpaces the CD's interest rate.

Fees: Some deposit accounts may have fees or charges, impacting overall returns. Limited Access to Funds: While deposit accounts offer liquidity, there might be restrictions on the number of withdrawals or transactions allowed.