This Isn't 12 CDs for a Penny

Hey there Money Saver! Welcome back to another week of How to Save A Buck, where we explore ways of saving money in personal finance, credit cards, and investing! Check out my archive here!

Compact discs were all the rage a couple of decades ago. You know - those things you played like a record on a turntable?

Now, it’s CDs. But there’s no music.

Certificates of Deposit are one of the easiest tools to take advantage of in personal finance. These silent financial options get overlooked in the dazzling world of stocks and bonds. Yet, they wield the power to fortify your financial arsenal.

Why should you care about a CD? What rules govern a CD? How does a CD differ from a savings account?

CDs may seem boring and basic, but we’ll show you how their flexibility and yield can offer you huge value and allow you to maneuver quickly in the financial world.

What am I agreeing to?

Think of a CD as a financial time capsule: stash your cash, wait out the term, and voilà—your money emerges with interest! They’re like savings accounts on a growth spurt, offering higher interest rates in exchange for a nap period.

But - breaking the capsule open early (a.k.a. withdrawing your funds) might cost you a ‘get-out-of-jail’ fee, unless it’s the no-penalty kind. Longer naps usually mean more growth (higher APY), so pick a term that won’t give you saver’s remorse. In short, lock away what you won’t miss, and let the bank do the babysitting!

Are you Mature?

As your CD approaches its grand finale, it’s decision time. Most banks remind you of the approaching maturity. You’ll likely have 2 options: 1) roll into another CD at a rate determined by the bank with the same term, or 2) cash in your funds and deposit them into another account of yours.

Unless you have specific plans, it’s always worthwhile to shop around. The same bank, or another may offer more compelling rates at different term lengths.

My CD recently matured and I elected to deposit the funds back into my savings account until I decide what to do.

You can see from the below, that my CD was giving me 0.65% more yield than my savings account - if I agreed to lock up my money for 10 months. My maturity date was February 3, 2024, and my CD stopped.

And yes, I’ll have to pay taxes on the interest I earned.

Why the hell should I care?

If you’re sitting on extra funds and aim to amplify your savings, consider a CD for its earning potential. It’s an ideal choice whether you’re saving for a specific goal or just need a temporary stash for your cash, letting the rest of your portfolio ride the market waves.

Locking away your funds in a CD for a set period can yield a more attractive interest rate than a regular savings account, provided you resist dipping into it before the term ends.

With a CD, you secure a fixed interest rate, giving you a clear forecast of your earnings at the term’s end, free from the fluctuations of variable rates.

Decisions Decisions

CDs come in all shapes and sizes. Some interesting options are below:

• High Yield CDs: these may offer the highest possible rates, but of course, come with stipulations you need to know, like absolutely no withdrawals before the term ends.

• No-Penalty CDs: these CDs usually allow you to make a withdrawal or two during the term with no penalty, but come with lower rates of interest.

• CD Ladders: A CD ladder is when you deposit money into a mix of short-, medium-, and long-term CDs. The goal of CD laddering is to lock in high APYs across multiple CDs instead of lumping all your funds into one CD.

Online resources such as NerdWallet and Bankrate are great sites to visit and compare apples to apples.

As of this writing, some of the best CDs are offering rates above 5.00% for a 12-month CD.

Remember, some of the most rewarding investments are boring. CDs aren’t going to win the “Best in Show” medal anytime soon, but their steadiness may be just what your portfolio is asking for.

Whether you have a short-term goal or want some reliability, CDs can pay more interest than a HYSA.

But just like a kid in a record store buying their first CD, shop around!

Save On,

Chris