Certificate of deposit account 101: How can it help me?
When you think about your savings, what do you envision? People often imagine their savings as a large pool of money sitting in a single account. But savvy savers know better. Even if you might not consider yourself a savvy saver, we’re here to help you become one.
A certificate of deposit (CD) is a frequently overlooked money tool that can help you power up your savings and take full advantage of your interest-earning potential. If you’re new to saving, it might not be the first place to start. But once your savings account is humming along and you’ve got an emergency fund set aside, it might be time to consider diverting some of your cash into a CD to help fund your future.
CDs have become particularly important for me recently. As the parent of a teenager, I spend an incredible amount of time trying to predict the future and preparing for both the inevitable and the unexpected. A new-to-us car and an increase in my insurance? Definitely. College? Hopefully. A school trip? Probably. Bail? Probably not.
But for each eventuality, I have a savings plan in place. And for those that I see on the horizon, I rely on CDs to help keep my savings on track and growing, safe from market fluctuations and my personal temptation to spend.
How certificate of deposit accounts work
A CD is a type of savings account that locks up your money for a set amount of time. While your funds are inaccessible, they’ll also be earning a higher interest rate. Once the CD term ends, your money is unlocked and you can decide what to do with it next.
CDs are especially useful when you have a clearly defined goal you want to accomplish within a specific time frame. I know how excited my kid will be to get behind the wheel when she turns 16 (and I know I don’t want her driving my car if I can help it). I know she’s not going on a class trip this year, but it’s possible we’ll work together to make one happen before she finishes high school. For those eventualities, we use CDs to prepare.
You can open a CD with as little as $500, and the terms typically range from six months to five years. The longer the term, the more interest you’ll earn — and the longer your money will remain tied up.
Think about it as setting the guardrails to make achieving your goal easy. You’ll know from the beginning exactly how much interest you’ll earn, what the final balance will be and when it will become available, so you can plan ahead and effortlessly hit your target.
Since you get to choose the term length and how much you deposit, you can use CDs for a variety of savings goals. For example, you can:
- Open a six-month or 12-month CD to save up for a vacation, home renovation or large purchase.
- Use a five-year CD to save up for a major life event down the road, such as a wedding or a college fund for the kids.
- Redirect extra funds from your savings into a CD with any term length to keep your money growing at max capacity.
Member tip: There are many ways to put your money to work! A CD is versatile and can be used in a variety of ways to empower you to save.
How to get the most from your CD
Think of a CD as an intermediate-level savings tool. First you launch your savings account and build up an emergency fund. Then set that aside and let your money pool up some more. Once you have an extra $500 sitting around, it might be time to consider opening a CD.
Here are a few considerations to keep in mind before you get started:
- Decide how much of your savings you can live without and for how long. Make sure you have a healthy emergency fund and enough money on hand to cover any expenses that might come up during the term of the CD.
- Start small. Put $500 into a six-month CD and see how it goes. Once you’ve gotten the hang of it, you’ll be able to save with greater confidence.
- As your savings continue to grow, consider using CD laddering to take advantage of higher interest rates. For example, you might deposit $5,000 into five different CDs that mature at different times. As each one matures, reinvest it in a five-year CD.
How to open a CD account
Opening a CD is all about giving up access to your money today to help fund your future. It’s a decision in the short term to make a positive impact for future you. At OCCU, all of our certificate accounts are designed with your future in mind. We offer competitive rates and a variety of terms so you can customize your savings plan to meet your individual needs.
Getting started is easy. You can open a CD with us online using your OCCU member account and start earning higher interest. Start funding your future today. Open a CD now.
