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MoneyWatch: Managing Your Money
By Matt Richardson
Edited By Angelica Leicht
/ CBS News
In an economy with low unemploymentbut stubborn inflation and elevated interest rates, many find themselves being cautious about where they keep their money. Amid recent economic developments, savers need to be smart about where they deposit their funds and how much of those funds they keep available for themselves. With limited options to protect and grow their money, two traditional savings vehicles have taken on new importance this year: high-yield savings and certificates of deposit (CD) accounts.
CDs, especially, offer savers an attractive combination of security and growth potential. And with rates on these accounts the highest they've been in years, now is a great time to deposit money into one.
Start by exploring your CD rate options here to see how much more you could be earning.
Why you should deposit $5,000 into a CD now
Here are three reasons why you should consider depositing $5,000 into a CD now.
Higher interest rates
Rates on CDs are the highest they've been in years, with many online banks offering savers an APY of 5.5% or greater. Compared to the 0.43% many are getting with a regular savings account, you're essentially losing money by not withdrawing your money and depositing it into a CD instead. While any deposit into a high-interest-earning account is likely to get you more than your regular savings account, the more you deposit, the more you'll make — and the more that bottom line will compound over time.
A $500 deposit into a CD with 5.5% APY would only grow to $527.50 over 12 months. But a $1,000 deposit would grow to $1,055, and a $5,000 deposit would increase to $5,275.00. That's almost $300 more earned simply by moving your money out of one account and into another. So don't wait until rates drop. Start earning more interest by opening a CD account here now.
Predictability
In today's economy, financial uncertainty is prevalent. This makes it particularly difficult to budget. Without knowing how much you can make, you can't know how much you can spend now. But CDs take that concern out of the equation by letting savers earn the same interest throughout their full CD term, regardless of any external rate environment changes.
For example, if you open a CD with a 5.25% interest rate now — and the average CD rate drops to 4.50% in November — you'll still earn interest at that higher rate until the CD expires. Compared to regular savings accounts with their low rates, and even high-yield savings accounts, which have variable rates that are subject to change without notice, CDs are one of the best ways to track the exact growth of your funds.
Protection
In today's economy, with elevated prices at the gas pump and grocery store, it's too easy to tap into your savings and spend outside your budget. But not only is a CD safe (and FDIC-insured), but it can also protect your money from what may have otherwise been a never-ending cycle of withdrawals and deposits.
This is not to say that you should put all (or even most) of your money into one of these types of accounts. But a $5,000 deposit may be the perfect amount to put to the side and not spend. By withdrawing the money from a CD early, you'll be subject to a penalty. So don't put so much in that you can't live without it. But don't also put in such a small amount that you can't reap the rewards. Depending on your goals and personal financial situation, $5,000 may be the perfect amount.
Get started here now.
The bottom line
While the exact amount to deposit into a CD is a relative question specific to your personal circ*mstances, the benefits of opening a CD in today's climate are undeniable. Whether it be $5,000, $1,000 or some other figure, a CD offers many times more interest-earning power than regular savings accounts do. And those rates will stay steady for the full CD term, providing some much-needed predictability and reliability. Plus, the CDs are safe — they're FDIC-insured and protected against easy withdrawals that users may have otherwise made if their money was kept in a different sort of account.
Matt Richardson
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
