by Dana George | April 17, 2020
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If you're not sure what to do with your stimulus check, why not invest in something that can benefit your future?
By the time the Internal Revenue Service (IRS) distributes all of the stimulus checks, roughly 140 million Americans will have received one. As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, each eligible adult is scheduled to receive a check for up to $1,200, with an extra $500 per qualifying child. And there may be a second stimulus check in the pipeline.
If you have received a stimulus check (or are expecting one) and do not already have a plan for what to do with it, opening a certificate of deposit (CD) could be a safe option.
The allure of CDs is two-fold: Your savings can grow faster due to the interest earned, and the money is federally protected. Another attractive feature of CDs is that they are customizable. Unless the account requires a minimum deposit, you get to decide how much to put in.
When you sign up for a CD, you are essentially agreeing to leave your money with that bank or other financial institution for a set period of time, typically referred to as the "term" or "duration." In return, the financial institution agrees to pay you a higher interest rate than it typically pays on savings accounts.
Normally you would have to pay a fee to withdraw money from a CD early, but the FDIC is encouraging banks to waive fees for customers impacted by coronavirus-related issues, including illness and job layoffs.
How much interest you earn is determined by the amount of money you deposit and how long you agree to leave it there. In general, the more money you put into a CD and the longer the term, the higher the interest rate paid.
CDs are popular due to the number of benefits they offer, including:
Nothing is perfect, and CDs do have disadvantages, including:
To be sure that you are doing the right thing for your situation, ask yourself these questions before you put your stimulus check into a CD:
Unless you have a pressing need for your stimulus check, the smartest move is always to build wealth. Weigh up the following three factors: security, timescale, and interest. If you need the money in the medium term and want the certainty of a steady return, even if it's a relatively low one, a safe financial haven like a CD might be a good route. Check out our list of the best CD rates to find the right one for you.
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