The 3 Biggest Mistakes You Can Make When Investing in CDs

Certificates of deposit (CDs) are a smart, safe way to earn interest on your savings, offering guaranteed returns with FDIC insurance up to $250,000.

But even though CDs are low-risk, there are a few ways you can trip up. Choosing the wrong product or ignoring the fine print can limit your returns or tie up your money when you need it most.

Here are three of the biggest mistakes to avoid when investing in CDs.

1. Not shopping around for the best rate

Many people pick a CD from their primary bank without comparing options. That can be a costly mistake.

Let's say you invest $10,000 in a 3-year CD:

• At the current national average of 1.34% APY, you'd earn about $407 in interest.
• With a 4.00% APY, you'd earn around $1,248.

That's over three times more interest just for checking all your options.

To avoid this mistake, take time to compare CD rates across multiple banks and credit unions. Online banks often offer higher yields than traditional ones, and many promote limited-time offers with boosted rates.

2. Picking the wrong term length

If you withdraw your money before the CD matures, you'll likely face a penalty, sometimes months' worth of interest -- which can wipe out a big chunk of your earnings.

So make sure the CD's term fits your financial timeline. If you're unsure when you'll need the money, consider shorter-term CDs, or building a CD ladder, which lets you stagger your maturity dates.

For your emergency fund or money that you think you'll need in the short term, consider a high-yield savings account that offers more flexibility than a CD.

3. Ignoring the CD maturity date

When your CD matures, your bank gives you a short grace period -- usually around seven to 10 days -- to decide what to do next.

If you don't act, your bank might automatically renew your CD for the same term, but at a potentially different interest rate. Even if your bank sends a reminder, it's easy to miss the deadline.

You'll want to find out in advance what your bank will do if you don't take action at maturity. Set a calendar alert so you're ready to make a decision during the grace period. Then compare your bank's new rates to offers from other institutions to make sure you're still getting the best deal.

Invest in CDs the right way today

Investing in CDs the smart way comes down to a few key steps. Start by comparing CD rates from multiple banks to get the most competitive return. Choose a term that lines up with when you'll need the money, and avoid locking in funds you might need early. Then make a plan for the maturity date so you can move your money if renewing isn't the best option.

By keeping these simple tips in mind, you'll make sure that your CD investments remain a benefit rather than a burden.