Are you exploring options to grow your savings with minimal risk? If so, a Certificate of Deposit, commonly known as a CD, might be an attractive investment choice for you. This blog post from Fidelity Federal will define CDs and explain their benefits to help you decide whether they align with your financial goals.
Understanding Certificates of Deposit (CDs)
A Certificate of Deposit (CD) is a financial product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.
In other words, you agree to invest a sum of money for a fixed term (months to years) at a fixed interest rate when you purchase a CD. The bank then holds onto your deposit with the promise you’ll be paid back the entire sum plus interest at the end of that period. The interest rate is typically higher than that of a standard savings account because the bank is assured that it can use your funds for a set period.
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Benefits of Certificates of Deposit (CDs)
1. Higher Interest Rates
CDs generally offer higher interest rates than regular savings accounts, meaning the potential returns on your investment are greater. The longer the term of your CD, the higher the interest rate usually is.
2. Fixed Interest Rates
With a CD, the interest rate is typically fixed when you open the account, providing you with a guaranteed return that is not affected by market fluctuations. This means you’ll know exactly how much you will earn over the life of the CD.
3. Low Risk
One of the major benefits of CDs is that they are considered low-risk investments. They are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per insured bank, for each account ownership category, providing peace of mind that your investment is secure.
4. Range of Term Lengths
CDs come in a variety of terms to meet different financial needs and goals. Whether planning for a short-term objective or looking toward long-term savings, a CD term that fits your timeline is likely available.
5. Predictable Savings Plan
Because CDs have a fixed term and set interest rate, they can be a valuable tool for planning your financial future. Whether saving for a down payment on a house or setting aside money for a child’s education, CDs offer a dependable way to earmark funds for a specific goal.
6. No Monthly Fees
Another advantage is that CDs typically do not come with monthly maintenance fees, which can erode the value of your savings over time in a standard savings account.
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What To Consider When Choosing a CD
Before investing in a CD, it’s essential to consider several factors, such as:
- Interest rates compared to other investment opportunities
- Early withdrawal penalties if you think you might need access to your funds before the CD matures
- Your financial circumstances and goals
- The length of the term that best suits your needs
Overall, a Certificate of Deposit can be a good option to keep your savings secure and growing consistently for a specific period of time. While CDs might not offer the high returns of riskier investments like stocks or bonds, they can provide a stable and predictable means of saving.
Open a Certificate of Deposit (CD) at Fidelity Federal
Here at Fidelity Federal, we offer FDIC Insured interest-bearing CDs with terms ranging from 91 days to 48 months. In addition to providing an automatic renewal option, we frequently run CD specials for specific term accounts.
Feel free to contact one of our banking specialists at Fidelity Federal today to ask about our current CD specials. We’re happy to assist you in evaluating your savings options to find the most suitable one for you.
