The best place to start saving is a piggy bank. However, at some point, you will have to trade up to a real saving where the money can grow and just not outgrow a ceramic container.
You need to start investing in financial instruments like CDs and plan for the future. Putting your money in cumulative deposit or CDs is safer than investing in stock market or other investment venues.
In fact, CDs are easier to get access to and within reach when the deposited money is needed. Banks and financial institutions offer a lot of choices when it comes to CDs and bonds. That being said, let us look at a few various tips to for your money.
1. Choosing A Bank
When choosing a bank for your CD, think about what rate would make sense and what is important to you in a financial institution.
Almost all banks have , which means your deposit up to the amount of $250,000 is safe and guaranteed even in the event that a bank would file for bankruptcy.
And with an online account in one of these banks, you can keep track of how much money you are earning as interest as well.
2. Credit Unions
Opening a CD account in a conventional bank isn’t the only option available. Like banks, credit unions offer interest on your deposit as well as let you access your money when needed.
However, tend to be smaller, offer lower interest rate than big banks that offer best bank CD rates and may or may not have FDIC insurance.
If you still insist on choosing credit unions, open an account that pays earnings on your deposit using compound interest.
3. Shopping Online
Online banks and banks that do business online have better rates for CDs compared to the rest due to low overhead cost and other factors.
The option to check your account balance and interest accrued may be appealing for most due to the ease of access – through desktop, laptop and smartphones. While some people like to have a bank located closest to where they live, fewer people have the time to visit bank branches these days.
Some online banks also for opening a CD on the internet. If you are having a hard time deciding between a brick and mortar bank and online bank, consider one that gives you better rate and has its presence both offline and online.
This will give you peace of mind, a head start for your savings strategy or both.
4. Interest Rate Vs APY
An interest rate is straightforward. It is the percentage that your CD will earn over the course of a year. APY is that takes into account the compound interest earned if any.
Not all CDs pay based on compounding interest. To earn more money, choose one that does. With compound interest, you will not only earn for the principal amount but for any interest earned as well.
The more often this interest is calculated, the more money you will get. Compound interest plays a crucial role in being able to achieve your financial goals. The video below talks about the mathematics behind calculating this interest.
5. Timing The Savings
It is hard to figure out when to start saving with CDs without mapping what your financial future will look like. Like setting out for a long journey, you may not know what you will encounter along the way.
There could be an unexpected turn of event or the expense will break your bank. Part of planning for your CD is to make sure that you invest in one as early as possible, either for a short term or long term based on when you need to take out that money in the form of principal or loan.
Additionally, you will need to find out the right balance for saving. There are many options available, such as direct CDs (ones that are obtained directly from banks and other financial institutions), fixed rate CDs, brokered CDs( that are sold in secondary market), (based on the number of years) and so on.
Most financial experts suggest going through various options available to you and understanding what each one of these means.
Just like stocks and mutual funds, investment through CDs should be diversified. In other words, don’t put all your money in one single CD. Doing so is not only risky but a bad saving strategy.
With in several types of CDs from various banks, you are taking less risk as well as increasing the chance of possibility that your money will be safe even when one bank fails.
7. Getting Advice
Investing in general, may be overwhelming for people who are just starting out. However, it can overwhelm anybody, so remember that any type of savings or investment strategy will take time.
Some people financial gurus to make decision about something as simple as CDs. However, these experts don’t work for free.
Some charge fee based on your portfolio net worth and others earn commission for what they sell. You may want to make sure that your cost in zero or minimal when investing in fixed tools like CDs and bonds.
Will You Consider Investing in a CD?
Last but not least, the basic concept of investing in CDs is to have a safe haven for your hard earned money. You can start with as little as $100 to begin with and have the sense of saving for the future.
In essence, a CD will earn you more money than it would if your savings would be sitting in a checking account. Other investments have various degrees of risk and most of them are riskier than CDs.
Taking greater risk may lead to greater returns. On the flip side, the losses may be greater as well. CDs are a great choice for those who have low risk tolerance.