There are many financial products in which you can invest your hard-earned money. You can take risks and invest in the fluctuating stock market or purchase an asset; however, if you want a less risky option, you can invest in your own savings. Certificates of deposit (CDs) are perfect for saving and earning interest on funds you will need in the distant future.

What are Certificates of Deposit (CDs)?

Certificates of Deposit are a type of savings account with a fixed interest rate and fixed time. The account provides higher rates than other savings accounts, but you can only withdraw the money on a specified date.

The account assumes that you’ll be fine without the money, so you lock the money until the maturity date. As such, you’ll get penalized for withdrawing the funds earlier than stated.

Advantages of Saving with a CD

Safe Investment

One of the most important things to look at before you invest is the safety of the investment. Like savings accounts and money market accounts, CD accounts are insured by FDIC, so you get your money if the FDIC-insured bank shuts down or fails.

High Returns

Certificates of Deposit saving accounts offer higher interest rates than other deposit accounts like money market accounts and traditional savings accounts. That’s because they offer federally insured, fixed interest rates that make them safer. Long-term CDs provide higher rates since you are saving for a long time period

Guaranteed Yields

CDs give you the certainty of returns on a specific day. Whenever you purchase a certificate of deposit, the interest rate and maturity date lock-in, providing uniform, consistent growth until maturity. Your returns will not fluctuate with market changes like other investment forms like stocks.

You can calculate the interest you’ll earn on the amount saved. For example, for a $5,000 five-year CD with a 1% APY, the income is $255 plus the deposit.

Zero (or Low) Fees

Traditional savings accounts usually charge a monthly service fee that affects your returns. You can use a CD to avoid such monthly fees. While some CDs require a minimum deposit, that is usually the only requirement; you’ll not be charged any additional fees. As such, you’ll collect all the interest you make.

CD Laddering

If you want to enjoy the benefits of a Certificate of Deposit account but tap into your funds along the way, you can use CD laddering.

CD laddering is a savings technique that allows you to keep your funds accessible while enjoying the interest rates of a CD account. The strategy lets you open multiple CDs at various interest rates and maturity dates such as one year, two years, four years, etc. That way, you can access your funds in the intervals of the maturity dates and have continuous maturing CDs. You can also channel the funds into another CD instead of withdrawing and enjoy higher rates.

Are CDs Right for You?

If you are trying to create an emergency savings account, CDs may not be your best investment option. However, if you are looking a long-term savings plan with higher returns, consider investing in a certificate of deposit.

Wherever you are on your investment journey, F&M Bank would love to help you discover your best possible options. For more information about our current CD rates and to calculate anticipated income, feel free to stop by or call any of our locations.