How to Choose the Right CD for You

A certificate of deposit (CD) can be a valuable tool for reaching your savings goals. CDs typically offer a competitive interest rate, and they allow you to protect your savings while locking in a guaranteed rate of interest for an agreed-upon time period.

CDs are considered low risk because at the end of the CD term, you get back the full amount you deposited, plus the interest accrued. And if you open a CD at an FDIC member bank, you have assurance that your deposits are insured up to the maximum allowed by law.

There are different types of CDs with a variety of terms and features, so it can be tricky to determine which type of CD is right for you. Keep reading to learn some important things to consider when choosing a CD.

The CD term is the amount of time you agree to keep your money in the account. Before purchasing a CD, you first should figure out how much money you’re comfortable socking away and for how long. This will help you determine the right CD term for you.

Remember that the money you put in a CD won’t be easily accessible for the term of the CD. For most CDs, taking out your deposit before the CD matures will cost you an early withdrawal penalty.

But there are a number of different terms to choose from, such as nine months, one year, two years, three years, and five years. Take time to consider when you’ll need access to your money and choose a CD term that will meet your needs.

After you determine the time frame that will work, you’re ready to compare interest rates across CD providers. The Annual Percentage Yield (APY) is a percentage rate reflecting the total amount of interest paid on an account, which is based on the interest rate and the frequency of compounding interest for a one-year period. Because it includes compounding interest over a period of 365 days, the APY is usually a higher number than the simple interest rate.

When comparing CDs, especially for terms of one year or longer, it’s a good idea to look at the APY rather than just the simple interest rate. If you keep your funds invested for the full term, you should earn the APY on an annual basis. Also, rates may vary based on the term of the CD, so it’s important to compare APYs for the same terms with different providers.

If you want to compare the APYs you’re seeing to others in the market, consider checking with the FDIC, which provides a monthly update of the national average rates for different types of savings products.

The minimum deposit requirements and withdrawal penalties can vary across various CD providers. You’ll need to find a CD with a minimum deposit requirement that fits the amount you’re planning to save.

Also, before opening a CD, take time to learn about the withdrawal penalties and any potential fees associated with the account. It’s important to understand all the rules and requirements before opening the CD.

You will also want to examine the various features and benefits that a CD offers to find one that best fits your needs and can help you reach your goals.

For example, if you’re interested in accessing some of your funds during the CD term, you may want a CD with penalty-free interest disbursements. Forbright Bank’s Growth CD allows customers the option of penalty-free interest disbursements before the CD reaches maturity. Customers can set up recurring monthly withdrawals of paid interest or choose a one-time, per-term disbursement of all paid interest.

If you’re concerned about locking in your savings and missing out on a future rate increase, consider looking for a CD that allows best rate assurance. For example, Growth CD offers 10-day best rate assurance. This means if you open and fund a Growth CD and the rate on your selected CD term increases during the first 10 days (including the day you opened your account), you will get the higher rate.

Once you select the CD that meets your needs and has the features you want, you can open the account and sit back, relax, and wait for your interest to accrue. It’s an easy way to move closer to your savings goals and earn interest at a locked-in rate.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.