Maximize Your Return: Investing in a CD
Investing in a Certificate of Deposit (CD) is a great way to capitalize on higher interest rates and make more on your return. When opening a CD, you will specify a predetermined period, ranging from three months to several years, during which the funds will be inaccessible.[0] A CD provides a fixed, higher interest rate than a typical savings account, thereby allowing for a greater return on one's investment.
Due to the federal funds rate continuing to rise, CD rates have also skyrocketed, with many now offering 4% or more.[1] These higher interest rates are now available to those just investing a few hundred dollars, rather than those investing large sums of money.
When investing in a CD, it’s essential to consider the early withdrawal penalty.[2] CDs effectively tie your money up for anywhere from a few months to several years, and withdrawing cash from one before it matures can result in a cumbersome penalty fee.[2]
The penalty for CDs with terms ranging from 6 to 12 months is either 50% of the interest that would have been earned on the funds if kept until maturity, or 1% of the withdrawn amount, whichever is greater. If a Certificate of Deposit (CD) has a term of more than one year, the penalty for withdrawing funds early is either 50% of the interest that would have been gained by holding the funds until maturity, or 3% of the amount withdrawn, whichever is greater.
No-penalty CDs are also available, however, the interest rate for these is usually lower than a traditional CD.[0] Additionally, the financial institution may still impose a waiting period before you take out money and they might not let you take out a percentage but rather mandate you have to take out the full amount.[0]
One strategy advised by financial experts is to open multiple CDs at once and stagger the terms and deposits so that you can have access to some of the money sooner and avoid getting stuck in one long-term CD if interest rates begin to rise.[0]
When choosing a CD, you’ll also want to pay attention to the interest rate offered.[3] Ally Bank offers a variety of CD options with above-average interest rates, and lets you open an account with $0.[0] Bankrate also offers a list of the best CD rates you may get now.
Investing in a CD is a great way to capitalize on higher interest rates and make more on your return.
0. “Best CD Accounts of February 2023” GOBankingRates, 7 Feb. 2023, https://www.gobankingrates.com/banking/cd-rates/best-cd-rates/
1. “CD Rate Trends, Week of February 6: Rates mixed” Investopedia, 7 Feb. 2023, https://www.investopedia.com/cd-rate-trends-week-of-february-6-rates-mixed-7106652
2. “State Farm CD Rates February 2023 – Forbes Advisor” Forbes, 14 Feb. 2023, https://www.forbes.com/advisor/banking/cds/state-farm-cd-rates/
3. “The Best 3-Month CD Rates of February 2023” Business Insider, 10 Feb. 2023, https://www.businessinsider.com/personal-finance/best-3-month-cd-rates