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The Strange CD Move That Can Earn You More

Locking in money at low interest rates in a certificate of deposit might sound like a bad money move. But in some cases, making a long-term commitment can be a smart move even if you end up having to make early withdrawals from your CD before it matures.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, discusses how in some cases, getting a long-term CD makes sense even if you expect to have to pay early withdrawal penalties before it matures. Dan notes that Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) , and American Express (NYSE: AXP  ) all charge early withdrawal penalties that can range from three months to a full year of lost interest. Yet looking at rates from Pentagon Federal Credit Union, Dan notes that even paying those penalties can leave you with more interest over the long run under certain assumptions. Dan concludes that by being smart about penalties, you can maximize your CD income and give yourself maximum flexibility to structure your cash reserves as well.

What to do with the rest of your savings
Having some money in CDs makes sense, but you should also have some money in stocks. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal-finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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