Why It’s a Great Time to Invest in CDs

Why It's a Good Time to Invest in CDs

With continuing concerns of high inflation and economic uncertainty, many people are looking for the safest and most reliable places to grow their savings. As prices continue to rise, you want to make sure you are optimizing your investment plan and getting the most bang for your buck. That’s why now is a great time to invest in CDs.

What Is a CD?

A certificate of deposit, more commonly called a CD, is a special kind of savings account with a fixed term and interest rate. They are FDIC-insured and generally have better rates than other types of savings accounts.

When you open a CD, you will have to choose the time frame for your investment, which can range anywhere from 3 months to 5 years. During this time, you lock into the current interest rate. While you continue to earn monthly interest, you can cash out the full amount when the CD reaches its maturity date.

If you make an early withdrawal, it usually has a penalty fee. Although long-term CDs tend to have better rates, they also carry higher penalties. Keep in mind that there are different kinds of CDs, including no-penalty CDs. However, offerings will vary between financial institutions.

Why Are They a Good Investment?

The primary reason why I have chosen to invest in CDs is because they offer better interest rates than your average savings account. If you look at the current rates, traditional savings accounts come with an APY between 4-5%.

These rates are comparable to the current interest rates for 1-year and 2-year CDs. However, there are no guarantees on these rates with a traditional savings account. But with a CD, they are locked in for the duration of the term.

Additionally, they are one of the safest types of investments since deposits are insured for up to $250,000. Most financial advisors agree that CDs are generally a very low-risk investment.

Why Is It a Great Time to Invest in CDs?

With so much economic uncertainty and fluctuation within the market, CDs are especially attractive in the current climate. Inflation has driven the cost of borrowing up, but it has also increased interest rates on CDs as well.

According to data from Deposit Accounts, the average year for CDs with a 1-year term is 5.18%. This is a significant increase from January when rates were 4.37%, and even higher from the previous year when CDs offered a 3.15% yield. Locking in these rates now could offer a substantial payout when the CDs come to term.

If you are looking for a way to safely increase your savings, ask your financial advisors if CDs are the right vehicle to help you achieve your financial goals.

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