Best Times to Use a Certificate of Deposit
It is always advisable to save money and try to make money on your earnings. Save for your retirement, add to your IRA, and pay off your debts. If you are saving accordingly and still have extra funds sitting idle in your savings account, you can receive a higher return on your money by opening a Certificate of Deposit account (CD).
A Certificate of Deposit account is a low-risk investment opportunity that is usually accompanied by a fixed term. In most cases, the longer the timeframe of the CD, the higher the interest rate will be. However, you want to make sure you will not need the cash before the maturation date before opening a CD account, as removing your money before the term ends can result in penalties.
Now, who should open a CD account and why? The reasons are simple. A CD can ensure a higher return on investment than a normal savings account without any high risk. Therefore, if you have money saved that you will not need for a certain period of time – a CD may be best for you. Other best use scenarios for a Certificate of Deposit include:
? When you have a certain goal in mind. For example, you may have saved up money for a new car or home. You have the desired amount in hand, however you don’t need that money until a later time down the road. Instead of having it sit idly in a savings account with a low yield, you can invest it with minimal risk and receive a decent return on your investment in a CD account.
? The longer the time frame for which you’re willing to tie up your funds, the more effective a CD can be for you. For example, if you are looking to store saved money for a long term, deposit it into a CD account that can earn you a higher yield for your time commitment.