5 Tips to Maximize Your CD Account Earnings

Banks Editorial Team · December 12, 2017

As someone who wants to secure your financial future, you’ll want to nurture your savings. Choosing the most beneficial financial product for you will help you earn interest and keep your money safe.

Certificate of Deposit (CD) accounts offer the best interest rates with the lowest risk. Almost all CD accounts are federally insured in case of bank failure. CD accounts can be thought of as less of a savings account and more of an investment account. You won’t be able to access the money for an agreed upon time frame, but you’ll earn better interest.

CDs offer benefits without you having to work too hard for them. But if you’re looking to take full advantage of your CD account, keep these 5 tips in mind.

1. Look at online banks for high interest CDs.

With current low interest rates, it’s important to find a CD account with a good Annual Percentage Yield (APY). CDs already offer the best APY’s in comparison to other types of accounts.

But, to get the best CD rates possible choose a CD from a reputable online bank. For example, Capital One offers a 2.45% APY for an online CD with a five year term.

2. Be 90% sure that you won’t need your money for a while.

Many people avoid CD accounts because they charge high penalties for withdrawing money early. Depending on the specifics of your investment, you could lose the interest you’ve earned by requesting money before the maturation date.

In some cases, you could be charged an amount that deducts from your principal investment. Avoid this by realistically choosing a term. Having a separate emergency fund can help greatly by acting as a cushion against unexpected expenses.

3. Divide your savings across CDs with different terms.

You can increase your rate of earning using a strategy called laddering. It works by having multiple CDs that are each started around 12 months apart. When a CD reaches maturity it’s reinvested into a new CD – but at a higher return.

The added benefit is that you’ll have access to your money periodically. And if interest rates rise laddering will allow you to reinvest in a CD with a better rate.

4. Save up before opening a CD account.

Some CDs, like Ally’s, don’t require a specific balance to open. Even though you don’t always need a specific amount to buy a CD, you’ll earn more on interest by starting big.

Tucking away some money is of course better than not doing so at all. But, if you want to maximize your CD earnings, aim to save up at least $500. Doing so works in your favor as you build up compound interest faster.

5. Draw out the money when it matures.

Some institutions will re-invest money after its maturity date if it hasn’t been withdrawn. This can be convenient if it’s what you want. Otherwise, you may pay a penalty when accessing your funds because it’ll be in a new CD account.

Find out whether your bank reinvests unclaimed money after certain time period. If they do, keep track of your CDs maturity date to avoid a costly penalty.

CD accounts offer the best APYs of all secured financial products. You can benefit from CD rates by keeping the above five tips in mind.

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