Saving money is one of the most important things you can do to protect your financial future. With a healthy amount of savings in place, you can pay for unexpected expenses and achieve your financial goals without stretching your budget too thin or relying on debt.
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However, keeping your money in the proper place is just as important as saving it. You want to ensure your funds remain safe until you need them — while ideally earning some interest in the meantime to grow your balance.
Savings accounts are what most people think of first, but there’s another option that’s worth considering: certificates of deposit (CDs). CDs are a low-risk, reliable place to put your money for a number of reasons.
Check out today’s top CD rates .
Why CDs are a safe place to keep your money
CDs can keep your money safe in the following ways.
They offer predictable returns
One of the benefits of CDs is that they offer a fixed interest rate, regardless of what happens in the economy. This can provide peace of mind, especially when compared to other savings options with interest rates that fluctuate based on market conditions. This is especially advantageous if you open a CD when rates are high.
This predictability makes CDs an excellent option for short-term savings goals, such as a down payment on a house, a vacation fund or paying for a child’s tuition. You know exactly what your CD will be worth and when the funds will be available, making it easier to plan ahead.
“If you have a known expense coming up… you really don’t want to have that exposed to the market, so why not just throw it in a CD and lock in when it’s maturing,” says Andrew Lippert, CFA, CFP, EA, founder and CEO of Simplified Wealth. “You know the date it’s coming due on; you know you’re getting at least a decent interest on it until that point in time.”
They’re protected by federal deposit insurance
If you open a CD at an FDIC-insured bank or NCUA-insured credit union, your money is protected up to $250,000 per account per institution. This can be especially reassuring after this year’s big bank failures.
They’re not subject to market volatility
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Another benefit of CDs is that they’re not affected by market fluctuations. With investments like stocks, the value can rise and fall drastically based on investor sentiment, news events and other factors. With CDs, the value is stable and doesn’t depend on whether the stock market is up or down.
This can provide a level of certainty that can be hard to find with other types of investments.
“If you don’t need access to a portion of your cash for six to 12 months and would prefer it not to be subject to the short-term ups and downs of the stock or bond markets, then a CD might be a good option,” says Tyler Gray, CFP, managing director at SageOak Financial.
They can discourage you from dipping into your savings early
Many CDs have early withdrawal penalties. If you access your funds before the CD matures, you’ll incur a fee, typically worth several months’ interest. This may seem entirely negative, but it has its upside: The potential to lose part of your earnings can prevent you from dipping into your savings prematurely.
With a product like a savings account, you can access your funds easily at any time, free of charge. If you’re tempted to withdraw your funds before your target date, CD penalties can help you resist this urge.
See today’s CD offers here to find out how much you could be earning!
The bottom line
CDs are an excellent choice for those who want to put their money into a low-risk investment with a guaranteed rate of return. And there are several types of CDs to choose from, so there’s an option out there for everyone.
To get the most out of your CD investment, take the time to shop around and compare offers from multiple institutions. Banks and credit unions are competing for your business, and you stand to benefit!
