Why Open a Certificate of Deposit?

Aug 2, 2022 9:27:08 AM

A savings account is a great way to keep your money safe and accessible; however, savings accounts tend to have low interest ratesBut what if you want your money to grow? If building wealth is a goal, then it’s important to think about investing. Certificates of Deposit, or CDs, offer a lower-risk investment option as compared to stocks or bonds—but pay higher interest rates than a traditional savings account.

What is a CD and why might you consider investing in them? Read on to learn more, and check out HUECU’s limited-time special rates on CDs!

What’s a CD?

A Certificate of Deposit (CD) is a special savings account offered by a credit union or bank. When you open the CD, you’re agreeing to keep your money in that account for a fixed period of time—so unlike a traditional savings account, you can’t spend it before the fixed period is done or withdraw your money, or move it into another account, without potentially being charged a penalty. In return for holding your money, the issuing credit union or bank pays you interest. Usually, this interest is well above what you’d get with a savings account.

How Much Does a CD Pay?

CD interest rates vary, but generally, you can expect a better interest rate the longer your CD term. HUECU, for example, is now offering special rates on CDs. Members who invest a minimum of $1,000 can choose an 11-month CD and get an annual percentage yield (APY) rate of 2.00%, or a 15-month CD with a 2.25% APY. This means that if you were to open a new CD today and put in $10,000, after 15 months, you would earn an extra $282.04 in interest

Why Choose a CD?

Certificates of Deposit are recognized as a very safe investment option, which still offers a solid rate of return. Investing in stocks or bonds offers a higher opportunity for growth, but also brings more volatility—if the markets go in the wrong direction, you could lose a significant sum of money. CD rates of return, on the other hand, are guaranteed. As long as you keep your money in the Certificate of Deposit account for the entire term, you’ll get your initial investment back with interest, based on your APY rate.

Can a CD Lose Money?

When you open a CD account with a federal insured financial institution such as a credit union or bank, your money is insured. If you keep it in the account for the agreed-on term, it won’t lose value. However, if you purchase a CD through a brokerage firm or third-party salesperson, you could be taking on more risk. Brokered CDs are usually not insured, and may come with variable interest rates—meaning your interest and initial investment will fluctuate based on what’s happening in the market. This provides an opportunity to make more money, but comes with a lot more risk.

When’s a Good Time to Open a CD?

If you have a money you don’t need immediate access to, it could be a good time to open a CD. Putting funds into a CD means your money is both safe, and working for you. Do be aware that withdrawing money from a CD prior to the full investment term can come with penalties—so make sure your emergency savings account is funded before you start a CD.

How Do I Open a CD?

HUECU has a number of CD options for members, including special rates for a limited time until July 31st. Visit HUECU.org to learn more, or call the Credit Union at 617-495-4460.

Tags: Savings