Why you shouldn't wait to open a CD
When it comes to personal finances, timing can be crucial.
Many prospective homeowners, for example, would have benefited from buying a home a few years ago when interest rates were significantly lower. In today's high rate environment, however, home buying has become cost-prohibitive. Homeowners looking to refinance may have also lost an opportune time to act.
Higher interest rates haven't been all bad news, however. In fact, they've significantly increased the benefits of deposit accounts like certificates of deposits (CD) and high-yield savings. Rates on these accounts have jumped exponentially, making now a great time to get started. For CDs, in particular, there are multiple compelling reasons to act promptly.
If you think a CD sounds beneficial for your needs then start exploring your options now to see how much more you could be earning.
Why you shouldn't wait to open a CD
Here are three reasons why you should stop waiting to open a CD account.
You could be making more money
If your money is currently parked in a regular savings account, then you're losing money by not transferring some (or all) of it into a CD account. Just do the math. The average interest rate on a savings account currently is around 0.39% according to the FDIC. Interest rates on CDs, however, are many times higher than that. It's not unusual for account holders to secure CD interest rates of 3.5% to 4.5% or higher in today's economy.
How much more money could you be making? After 12 months in a regular savings account with a rate of 0.39%, a $1,000 deposit will have only grown to $1,003.90. But that same amount in a CD with an interest rate of 3.5% will have grown to $1,035.00. The higher the rate (and the more of an initial deposit) the greater your return.
Start exploring your CD options now and get started!
Rates could drop
While today's rate environment is favorable for deposit vehicles like CDs and high-yield savings accounts there's no way to know where they'll be in the future. It's possible they could rise again but it's also possible (if not likely) that they will stay flat or even drop. In the latter two cases, you will have lost money by not acting when the time was right.
Timing the market is difficult. Avoid it and take advantage of CD rates now. You can also ladder your accounts, with different amounts and different expiration dates, so that you have a better chance of maximizing your returns. And remember: CD rates are fixed, so even if overall rates fall during your term you'll be locked in at the rate you opened it with. So get an account while rates are still favorable.
It can protect your money now
If your savings accounts have been hurt by rising expenses and nagging inflation you're not alone. But make moves to stop the damage by protecting your money now. A CD won't allow you to withdraw funds until the term has expired (without incurring a penalty). It's a natural way, then, to protect your money from constant withdrawals while growing it at a higher interest rate. Just make sure you only deposit an amount you feel comfortable living without, otherwise the penalties for early withdrawal could erase most (or all) of the interest you earned.
The bottom line
While now may not be a great time to buy a home or refinance an existing one, the climate isn't all bad either. It's particularly advantageous for those looking to protect and grow their money with a CD. These potential account holders shouldn't wait to open a CD because they're likely already losing money without it. Rates could also drop, so it makes sense to be proactive. It can also help protect against constant withdrawals that a regular savings account may already be subject to.
