3 Perks of Opening a CD Now, Besides Getting a Rate Above 5%

If you've been thinking about getting a certificate of deposit (CD), the big draw is probably the rates that banks and credit unions are offering right now. The best CD rates are currently above 5%. At that kind of APY, $10,000 in a CD would earn over $500 per year in interest.

Getting a large return on your money is a great benefit, but it's not the only benefit. Here are a few more perks that could make CDs worth your while.

1. The penalty is good motivation not to touch your savings

When you have money in a savings account, you can withdraw it at any time. That's convenient, but it can also make it more tempting to use your savings.

Let's say you have money you're planning to use for a down payment on a home. If that's not going to happen for another few years, but you want to go on a vacation this summer, you might think about turning part of that home fund into a travel fund.

With a CD, you need to keep your money deposited for the full term. If you take it out early, most CDs charge an early withdrawal penalty. The penalty is usually several months of interest.

Although some people consider this a drawback of CDs, it can also be an advantage. If you've had trouble with keeping your savings off-limits, putting it in a CD could help with that. You'll have financial motivation to avoid dipping into your savings.

2. You can lock in a high rate for the long haul

High APYs aren't the biggest benefit of getting a CD. Because interest rates have gone up over the last two years, you can get high rates on many banking products right now. For example, some high-yield savings accounts are also earning over 5%.

But CDs allow you to lock in a high rate for the entire term. If you open a 3-year CD with a 4.75% APY, your deposit will earn that APY for all three years. This provides protection in the event of interest rates dropping over that time period.

Interest rates are expected to start declining later this year. It isn't guaranteed, but if it does happen, it means savings accounts and CDs will be paying less. If you've already opened a CD, you won't need to worry about this.

3. CD interest could provide steady income

Some CDs let you withdraw the interest you earn during the term. You still can't touch the principal -- the money you deposited -- without an early withdrawal penalty. But you can get fixed income from the interest, if you want and if your CD allows this. Check with the bank before you open a CD to see if it's an option.

Another option to get steady income with CDs is setting up a CD ladder. A CD ladder is when you split up your savings into a series of CDs that mature at different times. For example, if you have $10,000 to deposit, and you want access to some of that money every six months, you could put:

• $2,500 in a 6-month CD
• $2,500 in a 1-year CD
• $2,500 in an 18-month CD
• $2,500 in a 2-year CD

Don't wait long if you're interested in opening a CD

As I mentioned earlier, there have been predictions of interest rates dropping this year. If so, CD rates will likely go down, too. So if you want to get a CD, it's probably in your best interest to open one soon while rates are this high.