According to a 2023 national survey by Bankrate, 1 in 3 Americans have more credit card debt than savings. Considering inflation and the current economic climate, many people also have less savings than a year ago.
Setting and meeting savings goals are imperative to your financial well-being and freedom. You should have money prepared for major purchases, future plans and emergencies.
Certificates of Deposits (CDs) offer the opportunity to earn higher interest rates on your money with guaranteed returns and protect your savings from the temptations of spending. Plus, with the added security of FDIC insurance, you can rest assured that your investment is protected.
Let’s explore how CDs work and how they can help you reach your savings goals faster.
The best way to accumulate wealth is to make your money work for you. If you’ve worked to build a savings account, you can usually earn higher interest on your money with certificates of deposit. CDs typically offer higher interest rates than traditional savings accounts, making them an attractive choice for investors looking to earn more on their savings without the risk of the stock market.
The interest rate offered on a CD depends on the term of your deposit. In other words, the longer you’re willing to lock your money away, the higher the returns. For example, a one-year CD may offer an interest rate of 2.00%, while a 5-year CD may offer an interest rate of 5.00%.
Compared to traditional savings accounts, which typically offer interest rates of less than 0.01%, CDs provide a much higher return on investment. This can make a big difference in how much you earn from the money you’ve put away for a goal like retirement or a major purchase.
These are just examples; you should check with your local bank to get the most up-to-date savings account and CD rate information.
Besides the higher interest rates, one of the biggest benefits of Certificates of Deposit is their low risk. CDs are considered a low-risk investment because they are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor per insured bank.
They also offer a guaranteed return and avoid the volatility of the stock market, which, especially when saving for a relatively short-term goal within the next year or two. You may not want to face the risk that can come with short-term market investing if you know you’ll plan to use the money sooner than later. You’ll know exactly how much money you’ll earn in interest over the life of the CD.
There are a million things to worry about in a day. Checking your investments constantly doesn’t have to be added to that list. CDs are easy to set up and require little to no maintenance. Unlike stocks or mutual funds, which need constant monitoring and may require frequent adjustments, CDs are a simple investment option that requires minimal effort.
Although CDs may offer a lower rate of growth than stocks or money market accounts, they allow a shorter-term investment with less risk. They also can be added to an array of investment strategies to diversify how you’re making your money work for you.
Overall, CD investments offer a hassle-free and secure way to grow your money without the stress of constant monitoring.
Let’s say you’re saving up for a down payment on a home. You know you’ll need a certain amount of money by a certain date, a CD can be a great option for you. You can choose the length of time you want to invest your money – many times, within a year – and you’ll benefit from an interest rate that’s higher than a traditional savings account.
If you’re prone to dipping into your regular savings account for non-emergency purchases, a CD helps you keep that money locked away for a specific amount of time. The early withdrawal penalty will make you think twice about touching your money before it’s time. Once the CD matures, you’ll have access to your funds plus the interest earned.
CD Laddering is a really effective strategy to make the most of your savings. With laddering, you can invest in a series of CDs with different maturity dates to earn higher interest rates while still having access to your money at regular intervals.
Start by dividing the amount of money you want to invest into equal parts. For example, if you want to invest $10,000, you could divide it into five parts of $2,000 each.
With laddering, you’d invest each part in a CD with a different maturity date. For example, you could invest
When the first CD matures, you’d reinvest the money in a new CD with the longest maturity date. For example, if the 1-year CD matures, reinvest the $2,000 in a new 5-year CD.
You then repeat this process as each CD matures, reinvesting the money in a new CD with the longest maturity date.
The benefits of CD laddering are twofold.
The longer the term of the CD, the higher the interest rate. With CD laddering, you can earn higher interest rates than you would with a single CD.
It also provides you with regular access to your money. By investing in a series of CDs with different maturity dates, you can ensure that you have access to some of your money at regular intervals. This can be particularly helpful if you need to access your savings for an emergency or unexpected expense.
CD laddering is a low-risk investment strategy that can help you build wealth over time. By investing in a series of CDs with different maturity dates, you can earn higher interest rates while still having regular access to your money.
You can get help with your certificate of deposit account when you choose a local bank to open a CD, even if you don’t have a lot of money. The bank that holds your certificate of deposit will offer unique advice for your financial situation and goals, including assistance with opening a CD and the details of how the process works. This takes some guesswork out of investing your money.
If you’re considering getting a Certificate of Deposit, contact the team at First Pryority Bank, Member FDIC, any time. Our staff is highly knowledgeable and offers personalized service. They can discuss your options with you, such as the initial deposit amount, the current CD interest rate, and how longer-term options can lead to greater savings returns. Discover how First Pryority Bank of Tulsa differs from others in the Tulsa area and how our customized approach to service can help you meet your financial goals.
*First Pryority Bank does not offer tax or Investment Advice. Please consult with your Tax or Investment Advisor.