When it comes to choosing a CD that fits your needs, it is important to consider your individual personal finance situation, and examine the different terms and qualities of different CDs before making your decision. There are a number of options when it comes to certificates of deposit, and you need to be prepared to do what is necessary to help you reach your own goals. Some things to consider about CDs include:
This is ho long it will take for the CD to mature. In most cases, the CD term can be anywhere from 1 month to 10 years. The length of the CD maturity determines when you have penalty-free access to your money. The longer the term, the longer your money is locked away. You can set up a CD ladder to help you access your money at regular intervals. However, before you choose a CD, you should realistically consider when you might need access to your money. If you think you might need it in two or three years, a CD with a term of five to seven years probably is not your best choice.
Another thing to consider is that many CDs come with minimum deposit requirements. You might need to deposit $500, $1,000, $2,500 or $5,000 in order to get the terms you want on your CD. Other banks and credit unions offer CDs with no minimums, so you could open one with almost any amount, such as $25. If you don’t have a chunk of capital large enough for a more attractive CD, you might have to get a CD that you can afford.
Another consideration is whether or not you are getting a good interest rate. This is a characteristic that you have to make concessions for, however. In many cases, the better interest rate is attached to the length of the CD term, as well as how much money is the CD. A CD with a term of five years, and a minimum of $2,500 is likely to have a better interest rate than a CD with a term of three years, and no deposit minimum. Consider what you are able to do, and how long you can afford to have the money in an illiquid state before you do something just for the interest rate.
There are also specialty CDs that come with specific perks. No penalty CDs might allow you to withdraw your money before the term is up, but you will have to settle for a lower interest rate. A callable CD might offer a higher interest rate, but the bank might close the account after a while. An IRA CD can offer attractive terms, but you might have to lock your money away for at least seven to 10 years — and you may not be able to withdraw anyway if you don’t meet IRA requirements.
Making Your Savings Plan
Consider your needs, and why you want the CD. Think of your savings plan, and the place of CDs in it. Look for CDs with terms that fit your needs, and your personal finance situation. Once you have a better idea of what you want to accomplish, you can choose the right CD to help you meet your needs.