You’ll first need to fill out an application. Opening a certificate of deposit generally follows the same steps as opening any new bank account, and the number of steps involved depends on whether you are a new customer of the bank or an established one. So while CDs won't return as much as stocks that are doing well, on the flip side, CDs are guaranteed to grow with no risk of you losing your initial principal. But the significant downside is that you can always lose money on equities, including scenarios where you lose most of your investment. The upside is that you could potentially earn quite a bit more in the stock market than with a fixed CD rate. If your time horizon for investing is several years long, you could instead consider investing in equities, or stocks. If you're considering a relatively short CD term, like 1 to 2 years, or even less, then bonds represent a much riskier option than a CD, with no guarantee of delivering a return. Of course, there's always a risk that bond returns could be negative from one year to the next, so the longer your time horizon, the less risky an investment in bonds would be. But unlike a CD, you cannot for any reason cash in an I bond during its first 12 months.ĭiversified bond funds are another idea, as they can potentially return quite a bit more than a fixed-rate CD. Like CDs, I bonds have an early withdrawal penalty, but it's a relatively mild three months' worth of interest. But their fixed rate is only known for six months at a time, with the rate being adjusted twice a year based on the current inflation rate (hence the name I bonds). They are also backed by the federal government, so like CDs, they are exceptionally safe. Treasury notes are very similar to CDs in that the rate is typically predictable if you hold the bond until maturity. So committing your funds to a CD can usually boost your earnings by a substantial margin.Īnother possible investment for your cash is a bond offered by the U.S. So if rates are declining, the annual percentage yield on your high-yield savings or money market account will almost certainly go down, while any rate on a CD will hold.Īlso, liquid accounts don't always offer as high of a return as CDs. The trade-off is that interest rates on liquid accounts can change at any time. Stashing your cash in a savings or money market account offers much more flexibility than a CD, letting you add and withdraw funds as you like. High-Yield Savings and Money Market Accounts Only allow one deposit: Unlike a savings account where you can continue to make deposits whenever you like, CDs allow just a single investment at the time when you open the account.Typically return less than other investments: The earnings on CDs are modest compared to what you can potentially earn by investing in the stock market, though stock investments are much riskier and not guaranteed to provide a return during your time horizon.If rates rise, you may regret being locked into your APY: If the interest rate environment improves after you buy a CD, you may wish you had committed later, when you could have earned a higher rate.Incur a penalty for early withdrawal: If you need to withdraw your money before the CD's maturity date, the bank will impose an early withdrawal penalty that will reduce your earnings.Can help deter spending: Funds committed to a CD cannot be withdrawn early without a penalty, making CDs a good vehicle for keeping, rather than spending, your savings.Are virtually risk-free: By opening a CD at an FDIC-insured bank, you are federally protected on up to $250,000 of your deposits, in the unlikely case that the bank fails.Offer a fixed, guaranteed rate: The annual percentage yield (APY) that you sign up for when opening the CD will be fixed for the full term.Often pay higher APYs than liquid accounts: In exchange for you keeping your money on deposit for a specified period of time, banks generally pay higher annual percentage yields (APYs) on CDs than on savings and money market accounts.Typically return less than other investments If rates rise, you may regret being locked into your APY For anyone looking to put $100,000 or more into a CD, you may find even better rates in our roundup of the best jumbo CD rates. If you want to explore more options-including credit union CDs-we also publish a complete list of the best nationwide CD rates, as well as stand-alone pages for the best 3-month, 6-month, 1-year, 18-month, 2-year, 3-year, 4-year, 5-year, and 10-year CD rates. Ranked by highest APY, then shortest term, then lowest minimumĭetailed information on the top nationally available bank CD in each term is provided below, including specifics about minimum deposits and early withdrawal penalties.
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