A certificate of deposit, or what is more commonly known as a CD, is a type of savings account investment that pays a higher interest rate than a standard checking account but requires a promise to your bank or credit union that you will not withdraw the principal from your account over a set amount of time, or term length.
Once you decide that a certificate of deposit is the right choice for your savings, what’s the best way to get one? Here are some strategies to ensure the CD you purchase receives the best return.
- Have a goal for when it matures. How will you use the CD? Are you saving for college? A new car? Why you are saving can be as important as how you will save. Create a goal that will not require an early withdrawal or purchase a CD that has a short-term if you know you’ll need the money sooner.
- Shop around for the best returns. Some banks offer “relationship pricing” or higher interest rates on CDs because they consider the aggregated balances on checking and savings accounts of which the customer is the primary or secondary account holder. Some banks will allow you to earn a higher interest rate on CD products based on your existing relationship and aggregated balances with the bank.
- An alternative to the stock market. If you have a retirement fund that you will need in 10 years, but don’t want to expose it to the risk of a declining stock market, you can put it in an insured CD, with a good rate. The longer the term, generally, the higher the rate, and you’ll know exactly how much money you’ll have at the end of the term.
- Weigh CD APY vs. savings account APY. The balance factor is the term. If you can get a great APY for your CD that’s significantly better than your savings account rate over a term you are comfortable with, it may be in your best interest to get a CD. However, if the rate requires an extremely long CD term that you cannot commit to, you may want to wait until the CD rate rises.
If you want to know if a certificate of deposit is the right savings solution for you, give the experts at NASB a call at 800- 677-6272. Look for more excerpts from our eBook, Everything You Need to Know About Certificates of Deposit in upcoming blogs.
