4 Little-Known Perks of CDs

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KEY POINTS

  • A certificate of deposit (CD) is one of the safest ways to grow your money.
  • They're available from many banks, and for a variety of term lengths.
  • CDs allow you to avoid monthly maintenance fees and take advantage of CD laddering.

Give CDs a closer look.

Everyone knows about checking accounts and savings accounts. But you can also open a certificate of deposit (CD) through your bank. A CD is a type of bank account where you lock up some of your money for a set period of time, and you can earn a higher APY (annual percentage yield) on that money than you would if you just left it in your checking account or in most savings accounts. CDs come with a set period of time for the interest to accumulate on your money (it's paid monthly or quarterly), and if you withdraw it before the maturity date, you'll have to pay a penalty. The penalty is often equivalent to at least one month's worth of interest.

The interest payments can be paid to you or added to the money in the CD, which is generally a good idea, as that way you'll earn even more interest (interest on top of interest!). CDs are one of the safest ways to help your money grow, and while they do have some drawbacks, such as a lack of access to your money during the CD term, and the possibility of interest rates increasing while your money is locked into a lower rate, they have some pretty cool features, too. Here are some perks of CDs you may not know about.

1. Your money is protected by the FDIC

The Federal Deposit Insurance Corporation was created after the bank failures of the Great Depression following the stock market crash of 1929. The FDIC does just what it says in its name: it insures consumer deposit accounts in case a bank fails. CDs, along with checking accounts, savings accounts, and a few other types of deposit accounts, are among those covered by FDIC protection. They cover 4,773 institutions as of this writing. To ensure that the bank you're opening a CD through is FDIC insured, you can ask a bank representative, check the bank's website, or use the FDIC's BankFind tool.

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2. You can choose your maturity date

You have choices when it comes to CD terms, as this is a product with a lot of flexibility. CD terms range from three months at the shorter end up to five years or longer (and some banks even offer 10-year CDs). If you're putting aside some money, say to buy a house, and know you won't need it for a certain period of time, you can put it into a CD and it will grow interest until you're ready for it.

3. You can avoid monthly maintenance fees

Sad to say, some banks charge maintenance fees on their accounts. This isn't the case for CDs, however. One of the advantages of a CD versus a savings account is that you won't have to worry about paying a monthly fee on your money.

4. You can make a CD ladder

CD laddering is a cool thing you can do with CDs. This is when you split up your money into different CD accounts with different long-term maturity dates (typically you'd use equal money amounts for each). If you've got $25,000 saved up, you could put $5,000 into five CD accounts, one each for a 1-year, 2-year, 3-year, 4-year, and 5-year term, as each of those CDs reach their maturity date, you can spend the money as it becomes available, or you could roll it right into a new 5-year CD. You're "laddering" your money to more growth and giving yourself the option to access some of your money annually. Since longer-term CDs offer higher APYs, eventually all of it will be in one.

If you've got money saved and want to watch it grow, and are okay with not having access to it for a (flexible) period of time, give CDs a chance and enjoy these perks.

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Rates as of Apr 14, 2024 Ratings Methodology
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Member FDIC. Member FDIC.
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4.50/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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APY: up to 4.60%

APY: 5.36%

Min. to earn APY: $0

Min. to earn APY: $0.01

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