When to Invest in a Certificate of Deposit (CD)

When inflation rises, goods can cost more. So even though it's a regular part of the economic cycle, it's not always fun for your bank account.

You can lower your spending and increase your earnings to combat the impact on your finances. But you can also get strategic about where you store your savings. CDs can be a great way to protect your money from rising costs and earn interest while you do it.

Here's how it works: The Federal Reserve raises interest rates to combat inflation and encourage people to borrow less. Even though it might be more expensive to borrow money, it's also easier to earn if you utilize high-yield savings accounts or certificates of deposit (CDs).

What is a Certificate of Deposit?

You can think of a CD as a type of savings account that holds a fixed amount of money for a specified amount of time (known as a term), CDs are often referred to as time deposits. While the money is in the account, it earns interest. When you redeem your CD, you receive the initial amount you put in, plus the interest. It can be a helpful way to make additional money if you don't need to access the funds for the length of the term. Certificates of deposit typically earn more interest than a savings account does, so you can earn more money in a CD than a traditional savings account.

For example, if you open a CD for $5,000 with a 3.5 % interest rate and a 1-year term, you would earn $175.00 in interest. So at the end of the one year, you would have $5,175.00. Learn more about how you can start maximizing your money today.

The interest rates and term lengths can vary, so shopping around for the best fit is a good idea. You also might have to pay early withdrawal fees if you access the funds before the maturity date, which is the end of the term. If you don't need to be able to access the funds immediately, CDs can be a safe place to keep money and a great way to earn money on your savings.

Who Needs a CD?

CDs are usually a straightforward and low-risk way to earn interest. The U.S. Securities and Exchange Commission considers CDs one of the safest investment options partly because the federal government insures CDs up to $250,000 per account owner per account category through FDIC insurance.

CDs can be an excellent “set-it-and-forget-it” alternative to other traditional investments because you can buy a CD and leave it until it matures. Because of that, CDs can be a solid choice for people of various ages and financial standings. They can also be beneficial if you want less risk in your investments.

When is the Best Time to Buy a CD?

CDs are usually most popular when interest rates are high because you can earn more interest and increase investment stability. CDs might be less popular when interest rates are lower because you earn less interest.

But even though interest rates are an essential factor, make sure to consider your finances as a whole. CDs can provide stability and fixed returns that are useful in any economic environment.

You can also consider “laddering.” Laddering means purchasing different high-yield CDs at different times, usually with varying maturity dates. You can ladder CD purchases to take advantage of rising or falling interest rates or the money you'd like to save.

Choosing the Right Certificate of Deposit

There are CDs with various terms and rates. The best option depends on your financial goals, comfort with risk, and current savings balance. Shopping around for the best CD rate is a good idea. Consider the following factors as you explore options.

• Minimum deposit amount
• Maturity date or length of the term
• Interest rate
• Early withdrawal fees

Once you’re ready to grow your money with a CD, take time to review your options. If you need additional guidance or want to discuss the next steps, you can also schedule an appointment with one of our knowledgeable local bankers.