On Wall Street, the term “CD” is used to describe a certificate of deposit. Have you heard of them? Banks and credit unions offer certificates of deposit to clients at premium interest rates. In order to get these rates, you must agree to leave a lump-sum deposit in an account for a certain amount of time.
The benefit of a CD is that you can receive better interest rates than you will find in a traditional savings account. The downside is that your bank or credit union can decide what penalties they’ll implement if you decide you want to withdraw the money from your CD early. If you have an emergency and you need to pull the money from your CD before it matures, you will be in a bind.
Usually, banking institutions and credit unions will offer CDs with term lengths of three, six, 12, or 18-months. When they offer a special promotion, this is usually a great time to invest in a CD., as they might offer even better interest rates or term lengths.
Read on to learn more about how CDs work, if they’re a safe way to grow your money and the various CD options that today’s banking institutions offer.
Withdrawing a CD Early
Withdrawing a CD early isn’t a good idea due to the penalties it will incur. This is why you should make sure you are in a solid financial place before investing in one. The only reason one should withdraw a CD early is if they desperately need the money, or if they have another investment that will provide a better return if the money is withdrawn.
When your CD has been in the bank for the agreed-upon amount of time, you’ll be able to decide if you want to withdraw the money plus the interest you accrued. Your bank or credit union will also probably offer the option of rolling over the completed CD into a new one, giving you the chance to grow the funds even more.
Are CDs Safe?
Unlike penny stocks, for example, CDs are typically considered a very safe investment. This is because their terms are fixed, and they’re often federally insured. With better interest rates, CDs also give people a chance to watch their savings grow far beyond what they would in a traditional savings account.
CDs are also not at risk of losing value in the market. They aren’t a stock that can lose value. CDs allow people to grow their own money, and if they can go without touching it before the term is up, they stand to make a lot off the CD’s interest rates.
The one thing you must remember about CDs is that you won’t have access to your funds unless you agree to the penalties. You’re also not usually allowed to add more money to a CD until the term is up. The lump-sum deposit is fixed, and you can’t keep putting in money whenever you want.
CD Rates in 2021
To show you the various options you have for CDs in 2021, we’ll provide some examples of rates you can find through various institutions. These CDs have been selected by Forbes as some of the best you can find this year.
CommunityWide Federal Credit Union
CommunityWide Federal Credit Union will start a CD for you with a minimum deposit of $1,000. You can choose term lengths that range from six months to five years. While some institutions will automatically renew and roll over your CD when it reaches maturity, this credit union does not. They will offer you the choice of renewing the CD before rolling it over without warning.
The annual percentage yield (APY) for this CD is 0.80% to 0.95%, which is pretty good. The yields that you earn on a CD here will be compounded each month and credited to your CD. There are also early withdrawal penalties, of course, but they will depend on which term length you choose.
A certificate of deposit with Quontic Bank can be opened for a minimum of $500. The APY ranges from 0.55% to 1.11%, and the term lengths start at six months. You can choose from six months, 12 months, 24 months, 36 months, and 60 months. Setting up a CD is easy, as this bank will accept funds from another bank, an ACH transfer, or a check.
The interest on your CD will compound daily, and those yields will be added to your CD each month. Quontic offers a 10-day grace period to withdraw the funds from your CD when your term ends before automatically renewing the account. As usual, the early withdrawal penalties will vary.
A CD at TAB bank requires a minimum lump-sum deposit of $1,000. APY rates range from 0.40% to 0.75%, and the terms range from six months to five years. The upsides to this CD are that it offers multiple different term lengths, and the APYs are quite competitive.
$1,000 is also quite good for a minimum deposit rate. If an investor is interested in building a CD ladder, the many different term lengths also provide a great way to do so.
Connexus Credit Union
Connexus is on the higher side when it comes to its minimum deposit requirement. You must deposit a lump sum of at least $5,000 to open a CD here, but it’s a solid option for a long-term certificate. The term lengths include 12 months, 24 months, 36 months, 48 months, and 60 months.
The APY at Connexus is 0.61% to 1.06%, and you are not required to open an account with Connexus in order to hold a CD there. The interest on your CD is compounded and credited to the account quarterly. Like Quontic, Connexus will automatically renew your CD if you don’t choose to withdraw it during the 10-day grace period at the end of your term.
A Comenity Direct CD has APYS from 0.70% to 0.90%, and the minimum deposit requirement is $1,500. Term lengths that are available include 12 months, 24 months, 36 months, 48 months, and 60 months.
The CDs at this institution are quite safe, as they’re insured for up to $250,000 for each depositor. However, you can still deposit more than $250,000 if you choose to.
In fact, account holders with COmenity Direct allow you to deposit up to $10 million. Most banks don’t offer this, so if you have the money, it’s a good option to look at!
First National Bank of America
With a minimum deposit requirement of $1,000 and APYS from 0.60% to 1.15%, this is another fantastic option when you want to open a CD. First National Bank of America offers CD term lengths from 12 months to seven years. If you have some cash that you feel comfortable not touching for seven years, you stand to make some serious returns with a CD.
People looking for a long-term CD will benefit greatly from these rates and terms. Each quarter, the interest will be compounded and credited to your CD. A major bonus of opening a CD here is that First National Bank will notify you 30 days before your account matures. That’s much more time than most institutions will give you to decide what to do with your money.
Believe it or not, Ally Bank offers CDs for no minimum deposit at all. That makes it one of the most accessible CD options that you can find today. Anyone with any amount of change can start a CD that can grow for anywhere from three months to five years.
The APY for an Ally CD is 0.15% to 0.80%. The interest will compound daily, and each month it will be added to your CD. With a 10-grace period after the CD hits maturity, Ally offers a decent amount of time to figure out what to do with your money.
Another cool thing about Ally is that they offer more than just a traditional CD. They also have a “Raise Your Rate CD” and a “No Penalty CD.”
When considering a CD, the most important thing to consider is how much money you can afford to leave alone for a significant period of time. The longer you leave a CD untouched, the more room your money has to grow. If you can lock down a CD with especially great interest rates, you can grow your money immensely just by not touching it for a while.
However, the penalties and fees are where the institutions will get you. There’s a reason some banks offer such a short grace period, and that some don’t offer a grace period at all. It’s up to you to know when your CD will mature and to be ready to decide whether to withdraw it or renew it by that time.
If you can put away a bit of money for a while and still pay the bills, opening a CD is a great way to watch your money grow without having to test the stock market. Do your research so you know what APYs and term lengths are best for you, and which kind of CD is best for your goals.