Whether you’re saving up for a house, a vacation or home improvements, you undoubtedly know the challenges of growing your bank account. Several factors can hinder your ability to save quickly. A car repair may force you to dip into your personal savings account, or you may need to withdraw money for an unexpected medical bill.
Despite the challenges that may come your way, you can achieve any financial goal you set. Often times, it’s all about choosing the right savings strategy. And given how current CD rates have increased in recent months, opening a certificate of deposit can put your savings strategy on the fast track.
When saving, some people rely solely on their regular savings account. This is certainly an option for growing your money and reaching financial goals. However, it may take longer to reach your target.
Regular savings accounts are easily accessible, so it’s easier to dip into these accounts and take money unnecessarily. You may see a purse, shoes or an electronic device that you have to have. With a debit card in your wallet, you can go to the bank and withdraw cash anytime, or impulsively swipe your debit card at checkout. The more impulsive purchases you make, the less you’ll have in your savings account.
It’s also harder to reach financial goals with a regular savings account because these accounts don’t offer the best interest rates. Other options are available to you, such as a money market account or an online high yield savings account. These options typically have rates that are higher than a regular savings, yet the rates aren’t as high as CD rates.
Opening a certificate of deposit might be the furthest thing from your mind. However, CDs are one of the safest investment vehicles available – and typically, they offer impressive interest rates.
What does this mean for you? Simply put, you’re able to quickly maximize your savings.
A certificate of deposit is a time deposit. When you open an account, you agree to leave your money in the bank for a certain length of time. Thus, you give the bank permission to use your money for any purpose.
The bank may use your deposit to loan money to other customers, or the bank may reinvest your deposit. Regardless of the use, the bank agrees to return your money at the end of your CD term plus interest. At the end of the day, you lose nothing.
If there are goals that you’re planning to meet in the near future, opening a certificate of deposit can certainly get you a step closer. Unlike a regular savings account, the cash deposited into your CD is unavailable until the end of your CD term. Therefore, you cannot go to the bank at a moment’s notice and withdraw cash from this account. With the money untouchable, it’s easier to save.
Several banks offer certificate of deposits and you can choose from a variety of terms. It all depends on your comfort level. It’s important that you research and compare offers. To illustrate, if you learn about Discover Bank’s current CD rates, you’ll notice that this financial institution offers flexible terms ranging from three months to 10 years. This is the perfect solution for short-term and long-term savers.
Obviously, the more you deposit into a CD, the more you earn in interest. But this does not suggest shrugging off CDs simply because you can’t deposit a lot into your account. Because of compounding interest, you earn interest on your interest. This is how your money grows. So, even if you can only deposit a small amount into a CD, the return will be higher than any interest you would earn from a regular savings account.
There are several ways to find money for a CD. Some people take money from a regular savings account and roll these funds into a certificate of deposit. This can work, but there are other sources as well.
If you get a sizable tax refund, rather than blow this money on shopping, open a CD with a bank. Additionally, if money happens to fall into your lap – maybe a work bonus, an inheritance or a gift – take advantage of this good fortune and open a CD.
Sure, you might miss out on a few luxuries. However, if this sacrifice puts you closer to purchasing a home, taking a dream vacation or renovating your home, isn’t it worth it?
Once your certificate of deposit term expires, you can withdraw your cash from the CD, or extend the length of the CD. Again, it all depends on your end objective and how much you need to reach financial goals.
It’s a safe investment strategy and current CD rates are increasing – what more can you ask for in a savings account?