When it comes to saving money for your future, there are many routes you can take to help you build a stable retirement or college plan. While you know you need to save money, figuring out how you should save can be confusing and quite overwhelming. Learning the difference between high-yield CDs, savings accounts, and money market accounts may be easier than you might think. Additionally, it can assist you in making the right decision about what works best for saving for your future.
There are many places you can put your money. However, you should put it where your money is going to work for you, not against you. One of the options that many people consider is using high-yield CD accounts. These products have many benefits that will help you see growth in your finances. You may find a higher interest rate available in your area or even online as opposed to a regular financial institution. Keep reading to discover the seven critical facts you need to know to help you make the right choice when it comes to your investment in your future.
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How Much Is Required to Open a High Yield CD?
The opening deposit for your high-yield CD is going to vary from institution to institution. Some CD accounts do not require a minimum deposit, while other accounts will require quite a large deposit. These larger accounts could require upwards of $2500.
One thing to note about your opening deposit is that some cd rates will go up if you deposit a more significant amount. For example, Ally bank, at one point, offered a higher rate if you deposited a more substantial amount. So, the return on your investment went up, depending on how much money you put into the account.
Typically, you will find that the opening deposit required for most CD’s starts around $500 and increases depending on the type of account you open. The more you have available to put in a high-yield CD, the better off you’ll be. This means you will have a more substantial amount of money working for you to earn a bigger return.
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Are CDs Good Investments in This Day and Age?
There are several different options out there to choose from when it comes to where you’re putting your money. As mentioned above, you could select money market accounts, CDs, savings accounts, to name a few. However, you may be asking yourself if it is a good idea to consider investing in CDs since we live in such a technologically advanced age.
The short answer is yes. These are still a fantastic investment to consider when you need your money to grow. The technologically advanced age will help you find competitive rates on your high-yield CDs. Consider how banking was handled in the past. When you wanted to find a competitive rate or open an account, you had to physically go around your town to see which one worked best for your needs. That is no longer the case.
With the internet, you can now search for different options from the comfort of your home on your timeframe. That means you can choose from a bank in your city or one that isn’t even near your home. It is up to you! There are also financial institutions that do not have a physical location, but instead, they are solely an online bank. Online banking allows you to find truly competitive rates and make your money do the work for you.
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You Can Earn Big!
Investing in CDs allows you the opportunity to earn big money in interest. Traditional savings accounts interest rates are quite low. Using the CD options available to you helps you to make wise decisions when it comes to growing your future. While you can earn money on the stock market, it isn’t the safest place to always put your money. You also have to remember that you don’t have easy access to it if you should need to get it out of the market. CDs are still a fantastic investment, even today!
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Can the Interest Rate Ever Change During the Life of a CD?
While in most cases, once you lock in a rate for your CD, it stays the same. However, there are some instances where rates can fluctuate. Some banks will offer a term during the life of your CD that you can check rates and move up a rate if they have adjusted since you opened the account. For instance, if you have a 60-month CD, you may find that the rates are better now than when you first opened the savings account. Some banks offer the ability to adjust the rate you’re receiving for the rest of the term.
Terms on your CD options vary from 5-month CDs up to 120-month rates. It is up to you how long you want to secure your money and the rate for it. When you’re first investing in CDs, you may decide to choose the smaller term and see how it works for you. This is a great way to get a feel for what to expect with the high-yield CDcd options and to see if tying your money up longer is a feasible investment for you. However, when you do choose a shorter term, you’re going to end up with lower APY rates, so that may affect your decision.
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Can You Lose Money on a High Yield CD?
Losing money on a high-yield CD is not typically the way things happen, but it can certainly occur. Most times, you will lose money if you try to take the CD out early or if you need to close the account. Fees can eat into the interest you’ve earned, and that can cause you to lose money instead of earning it. In most cases, CD’s are one of the safer investment options that you can choose from.
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What Are The Advantages and Disadvantages of Opening High-Yield CDs?
While the advantages typically outweigh the disadvantages of these deposit products, you need to have a clear idea of what to expect.
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Advantages of High-Yield CDs
- You’re going to find that the interest earned on these accounts is better than a traditional savings account.
- You can have peace of mind that your money is protected. When you use a financial institution that is FDIC insured, your money is insured as well.
- The terms on CDs are more flexible than on a typical money market or checking account option. With a CD, you can choose the term that fits your life. If you want a shorter term to earn money quicker, you can choose that!
- There are so many different options to choose from when it comes to your deposit product. CD’s are varied in terms, deposit amounts, and rates, so you truly have power over your investment.
Disadvantages of High-Yield CDs
- One of the main issues with CD products is the liquidity of your money. You cannot simply take money out of the account once you’ve opened it. You will be charged fees depending on the length of the term and how early the withdrawal is.
- Inflation can have an impact on your CD rates.
- You do not have a lot of flexibility on the rate once you choose the product you want. You’re typically locked into that rate unless you find products that offer a one-time rate change.
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What Happens If You Need Money Early?
If you anticipate that you will need access to a larger amount of money earlier than the CD term expires, you need to have an alternative savings account. One of the main reasons you put money into the CD is so that you can set it aside and not touch it. You can face stiff fines if you try to withdraw the money earlier than the term date of the CD. You should make sure you have money set aside in places you can withdraw from easily so that you avoid losing the money you’ve earned in your CD account. For example, setting aside some money in a money market account can help you ensure you have access to cash when you need it.
Some products may offer a partial withdrawal period, as well. It is best to talk to your customer service representative to make sure what the terms of the CD are before you commit.
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Who Offers the Best High-Yield CD Rates?
You will need to do a little research on the best rates to find one that fits not only your investment needs but also one that will meet your term needs. For example, if you know that you only want to tie up your money for a shorter term, such as with a 5-month CD, then you’ll need to look for rates on those products.
You can find rates as low as 1.8% APY and up to 2.7% APY. The rate is going to differ depending on the term you tie up the money for and how much you deposit, as well. For example, Popular Direct is offering a 2.7% APY if you deposit $10,000. If you’re just starting out with investing, you may not have that much saved just yet. Take some time to research what options are available and remember that you can open an online account just as easy as a brick and mortar account.
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Over to You
What high-yield CD rates have you found in your research? Make sure to comment below about what you’ve found to be the best product on the market to help you get the most from your investment!