There are literally dozens of ways you can save and invest your money these days. But the truth is, most of us are looking for something simple, dependable and relatively risk-free. If that’s what you want, then a certificate of deposit (CD) may be the answer. (They’re called share certificates at WWFCU.)
The ABCs of CDs
A CD is a savings certificate that has a fixed maturity date and a specified fixed interest rate. They can be issued in varying amounts and term lengths. Your access to the funds is restricted until its maturity date. Once the CD matures, the entire principal and the earned interest can be withdrawn. WWFCU offers share certificates for terms of 3, 6, 9, 12, 15, 24, 35, 48 and 60 months. Click here to view our rates.
Most CDs are what’s called non-negotiable, which means they can’t be transferred, sold, bought or exchanged. And if you withdraw your funds before the maturity date, you’ll pay a penalty fee. The cost of the fee depends on the length of your CD, and are usually based on the established amount of interest.
Why Choose a CD?
With all of the savings/investing options out there, why should you choose a CD? We have four great reasons why:
If you like to play it safe with your investments, then a CD is probably an excellent choice for you. The National Credit Union Administration insures deposits up to $250,000 per individual, so your money is protected. (Click here to learn more.) A main benefit of a CD is that it doesn’t work like stocks, the amount doesn’t fluctuate depending on the market. Your CD will slowly grow at a steady rate.
Speaking of steady rates, a CD’s rate will be higher than your average savings account. Here’s a good comparison … A 5-year CD at our current rate of 1.66% annual percentage yield (APY) compounded monthly will earn $2,065.03 on an initial investment of $25,000. The same amount put into a savings account that pays at our current rate of 0.05% would earn just $62.58 in five years if the interest rate remains the same.
Whether you’re saving for a car in six months or college in five years, you can find a CD to meet your needs and align with your financial goals. They are a great option if you have a large, one-time expense you know will be heading your way. And you can usually time the CD’s maturity date to when you’ll need it for that expense.
One of many great aspects of a CD is that they usually don’t come with any fees. However, if you redeem your certificate before it matures, you may have to pay an “early withdrawal” penalty or forfeit a portion of the interest you earned. Just make sure you read the fine print before you sign so you’re aware if there are fees and what the penalties will be.