Knowing what to do with extra money can be daunting. Should you put it in your savings? Checking? Purchase a CD? IRA? There are many options, each with pros and cons. One option is a bank certificate of deposit, commonly known as a CD.
What is a CD?
A bank CD is an FDIC-insured savings account with a fixed interest rate for a fixed amount of time called a term. A CD typically has a higher interest rate than a traditional savings account since the financial institution holds the funds for a specific time. Typically, the longer the CD term, the higher the interest rate.
The funds in a CD are available to the customer anytime during the CD term. However, a penalty will be assessed for funds withdrawn before the maturity date. This penalty is usually a percentage of the interest earned or a fixed amount, depending on the length of the CD term and interest rate.
Why should I open a CD?
A CD is an excellent, secure place to put your money for the short term. The key reasons to consider CDs include:
- CDs can offer the highest guaranteed returns for a bank account.
- There are no monthly fees or minimum balance requirements other than a minimum amount to open the account.
- CDs are considered safe investments, with federal deposit insurance for up to $250,000 (or $500,000 in a joint account for two people).
- With a CD, there’s no risk of losing money, except if you withdraw early, providing you with a strong sense of security and peace of mind. Once you open a CD, you lock in a rate, giving you a clear picture of how much you’ll earn over your CD term, whether that’s months or years.
CDs provide a range of terms that can add structure to your savings goals. CD terms typically range from three months to five years, offering flexibility to set aside some of your savings for a specific time for future purchases within that time period. The longer the term, the higher the CD rate is typically. Many institutions also offer short-term products with the highest rate of return. Remember, the shorter the term, the more opportunities you’ll have to redeem or renew a CD, putting you firmly in control of your savings.
Have questions or need assistance?
If you have questions or are interested in opening a CD at Bar Harbor Bank & Trust, speak to one of our banking professionals at the branch nearest you.
