Saving With CDs (Certificates of Deposit) for Beginners

When you first see the acronym, “CD,” what comes to mind?

Your brain may jump to the old compact discs, a now antiquated music listening format that reminds you of younger days when almost everyone had a Walkman CD player.

While compact discs might be a thing of the past, there’s another meaning to the acronym that isn’t going out of style anytime soon — a certificate of deposit.

If you have never used or heard of this kind of CD, you aren’t alone.

A CD can be a great, low-risk way to grow a healthy amount of savings — you just need to know where to start.

What is a Certificate of Deposit?

A certificate of deposit, sometimes referred to as a share certificate, is a type of low-risk savings account that is insured by either the federal government or the National Credit Union Administration.

Certificates of deposit carry a much larger percentage of interest than a conventional savings account, with some accruing up to a 3.2% annual percentage yield, compared to the less-than 1% APY rate found in a regular savings account.

This does come with one stipulation, the money put into a CD is usually locked into place over an agreed upon period of time.

Once money is deposited into a CD, it cannot be withdrawn until you have reached the end of that period.

Money put into a CD accrues interest based on the terms of the deposit period and the total amount of money deposited. In other words, a deposit of $5,000 with a five-year term would generate more interest than a deposit with a four-year term.

Both of these examples would accrue more interest over the life of the terms than a $500 deposit would make over the same period of time.

How Do I Know a Certificate of Deposit is for Me?

CDs are particularly beneficial because of the high interest rates and the safety of the investment.

The financial security of a CD is comparable to a traditional savings account, but with a much higher net profit.

This helps your wallet in the long run and can act as a secondary savings account.

What to Consider When Choosing a CD

When deciding whether to put your money into a CD account, there are a few things to consider:

CDs are Beneficial as a Source of Supplemental Income

This is true, if you have extra money that you’re comfortable parting ways with for a while.

For those who find themselves dipping into their savings fund more often than they’d like to, a CD might not be the ideal financial move.

A CD isn’t a substitute for an emergency fund or savings account. It’s important to have established financial flexibility before investing in something like a CD that penalizes you for withdrawing money early.

So, when considering a CD account, think about both the amount you’re looking to deposit and the amount of time that you’re willing to be without access to those funds.

CDs Will Not Grow Your Finances in a Huge or Drastic Way

When compared to something like the stock market, it doesn’t have the volatility seen in public markets.

Instead, CDs can help you grow your finances in a steady and safe way. Although you won’t see your investment make huge jumps, you also won’t see it completely tank and lose value either.

It’s predictable, low cost, and has guaranteed, expected returns.

To manage your CD account, you can stagger your investments by breaking up certificates into different certificates with varying terms.

If you’re looking to invest, but are worried about more risky endeavors, CDs are a great vehicle for that.

Where Do I Start?

HRCCU has several different options if you are interested in investing in certificates of deposit or special certificates.

We work with a philosophy of broad accessibility, and so we offer a range of options across the board.

Whether you want to invest $500 to $150,000 for two to four years, or if you have questions, we have services, rates, and terms that will help get your money where you want it to be.

Contact us or visit a branch today to get the answers you need.

If you don’t think a CD account is for you, but still want to start saving, check out our blog on saving when you haven’t saved anything.