Rates on certificates of deposit are finally rising! If you’re looking to kick-start your savings strategy, consider adding CDs to the mix.
CDs are seen as safe bets for saving or investing since they are federally insured and returns are guaranteed. And when CD rates go up, as they have in the past year, you’ll earn more money.
CDs Work Best When…
You want to protect your savings for something in the future. These may include saving for a down payment on a home or car. Whatever the goal, the money won’t be used for years and can stay safely out of reach in CDs.
You want to build short-term wealth. CDs with short terms, such as one or two years, can make sense if there’s a plan to later invest that money. For example, if you want to invest a large sum in the market, you might spread out when you buy stocks or funds over time using a popular investing strategy called dollar-cost averaging. The money waiting to be invested could go into CDs to earn more interest than it would in a regular savings account.
You want to ensure returns without risk. Investing in long-term CDs is generally best for people, typically retired, who want to avoid risking their money in the stock market. They also want to stop their savings from eroding because of inflation.
CD ladders can be a useful strategy in a rising-rate environment
A CD ladder is a way to spread out a large amount of money into multiple CDs of varying term lengths, such as one year, two years and three years. When each CD expires, you either withdraw funds if you need them or reinvest in another CD. If your financial institution has raised rates since you started the ladder, you benefit from higher rates with each new CD.
Financial advisors will usually encourage the ladder method when it comes to CDs. That said, if there’s an attractive long-term rate that suits your portfolio — maybe it comes due when you’ll need a new car or have to pay a college bill — by all means take advantage of it. It’s really important to consider your particular situation and talk it over with your advisor so you know it will help you achieve your financial goals.
Whatever your future holds, we’re positive it holds something worth saving for so take advantage of these fantastic rates and talk to Member Services about opening a CD today!
Find out how much you can earn with our Certificate of Deposit Calculator.