The word “saving” may put some people in a state of panic. But it doesn’t have to be a scary experience, especially if you take advantage of a savings product called a certificate of deposit.
A certificate of deposit, or CD, is also known as a “time deposit” or a “term deposit” because it’s locked in for a certain period of time. When you set up your CD, you can choose a term length that best suits your needs. You deposit your money into the CD and keep it there, earning interest, until the term is over and the CD “matures”. CDs are a great way to earn a competitive interest rate on money you would otherwise have sitting around.
There are short-term and long-term CDs available at most banks. Short-term CDs can range from three months to a year, while longer terms typically range between 18 months and 5 years. BankFive CDs are available in 3-month, 6-month, 1-year, 18-month, 2-year, 3-year and 5-year terms. Most of our CDs can be opened online, but to open a 3-month CD you’ll need to visit one of our branches.
A minimum amount is required to open a CD. At BankFive for instance, a $500 deposit is required for most of our CD products. But BankFive also offers a special 2-year “Investment CD” that you can open with as little as $100. This CD allows you to make additional deposits over the course of the term, which can help you save even more! With a BankFive 2-year Investment CD, you can deposit as little as $10 whenever you’d like, and you can even set up automatic recurring deposits on a weekly, bi-weekly, or monthly basis. And while some banks may charge monthly maintenance fees, there are none to worry about at BankFive, for any of our CD products.
What’s more, all BankFive CDs are insured in full. That means every penny you put into your CD is safe. Deposits up to $250,000 are insured by the Federal Deposit Insurance Corporation (FDIC), and because BankFive is a DIF-member Massachusetts-based savings bank, any deposits you make over the FDIC limit of $250,000 are covered by the Depositors Insurance Fund (DIF).
One benefit of a certificate of deposit is that you are guaranteed to make money on it. You know you can count on your money earning interest over the term, and you can determine exactly what that interest will be. This “guaranteed” interest differs from other types of investments, such as stocks, that depend on market forces to determine if they will gain or lose interest. With stocks and many other types of investments, there’s also the possibility that you could lose the amount you initially deposited, but that’s not the case with a CD. CDs are among the safest ways to save money with a bank. Of course, you have the potential for greater gains with stocks and other riskier investments, but they’re not always a “sure thing”.
At BankFive, once your CD matures, you can cash it out and get back your deposit plus interest, or you can choose to roll it over into a new term and keep saving.
One thing to consider before opening a CD is that there is typically a penalty for withdrawing your funds before the end of the term. So, to avoid paying any penalty fees for early withdrawal, be sure you can afford to put the money aside for the entire term, before you commit.
If you’re looking for a safe and secure investment, a CD may be right for you! But remember that it’s always a good idea to consult with a tax advisor before making any major financial decisions.