If you want to save money for the future and earn more interest than a typical checking or savings account, consider a certificate of deposit. CDs are a popular savings option that helps you grow your hard-earned money faster than a standard savings account. Plus, opening a CD is easy. Why choose a CD over other savings account options? Learn the basics of CDs and how they can benefit your savings goals.
What is a CD?
A certificate of deposit is a smart savings option that allows you to deposit a minimum amount of money for a specific period of time. In exchange, you’ll receive higher interest payments than typically found with money market accounts and traditional savings accounts. Additionally, CDs are FDIC insured up to applicable limits, helping protect your deposits while you work toward your savings goal.
You can choose the length of the term, ranging from months to years, and earn interest when your CD matures, then take the payout or reinvest in another CD. If you withdraw money before the maturity date, most banks will issue an early withdrawal penalty. It’s wise to invest in a CD when you can keep your money on deposit to maximize your savings.
Laddering CDs
If you don’t want to tie up too much of your savings into a single CD, consider a CD laddering strategy. This approach offers a way to spread out your investment using multiple CDs with different maturity dates.
With a laddering CD approach, you can grow your money at a higher interest rate than a typical savings account, and you don’t need to tie up all your savings at once. For example, if you had $10,000 to invest, you could deposit that into four CDs of $2,500 with different terms. Once each CD matures, you could choose to move that money into a new CD or take the cash.
Here’s an example of how you could ladder various CDs:
- 6-month CD: $2,500 at 0.550% APY*
- 18-month CD: $2,500 at 0.700% APY*
- 24-month CD: $2,500 at 0.750% APY*
- 60-month CD: $2,500 at 0.800% APY*
In this example, after 24 months, you’ll have grown $2,500 to $2,537.64. You can then deposit that money into a 60-month CD that earns 0.800% APY*, cash out or keep it in a different account. Once your 60-month CD matures, you can reinvest that money in another CD with a higher interest rate to keep the ladder going. The idea is to stagger CDs and their maturity dates, so you always have money invested and funds that become available without penalty.
Longer-Term Savings
If you know you don’t need immediate access to your money and want to earn better rates than a traditional savings account, a CD may be a smart savings tool for you. There are a variety of options to help you reach your long-term savings goals and you can open a CD at Bonvenu Bank for as little as $1,000.
The team at Bonvenu Bank is here to guide you through all life’s stages and can help you decide which savings account or CD makes the most financial sense. If you have questions, contact us or visit one of our convenient Louisiana branches.
