Locations
Contact
A Certificate of Deposit offers a stable investment vehicle with a predictable interest rate. An appealing addition to a portfolio, it enables you to diversify your investments and reduce your overall risk. If stable, high-interest, and secure investments appeal to you, choose a CD. Available in both short-term and long-term formats, CDs fit an array of financial needs. Here are three questions that can help you think more deeply about which format best meets your investment goals.
What is your savings timeline?
The first and most important question to ask when choosing the term of your CD is how long you plan to save money before you need to access it for your financial goals. For example, if you want to fund a family vacation, prepare for a home renovation, or save for a wedding, you probably want to obtain a short-term CD.
This option allows you to secure your money in a high-interest vehicle that matures in a short period of time. Typically, short-term Certificates of Deposit are available in 3, 6, or 12 month terms, allowing you to access your money as soon as you anticipate needing it. While they offer a lower interest rate than long-term CDs, they still earn more interest than you could earn through a regular savings account, allowing you to make your money go further in order to achieve your financial goals.
If your savings goals are further in the future, you could choose a long-term CD. For example, you might choose one of these options if you are trying to save for retirement or for college for your children. Considered long-term if they have a maturation date of at least 1 year away, long-term CDs can mature anywhere from 15 months to 5 years. You can even find ones that mature at an even later date. These CDs offer higher interest rates and compound your interest over time in order to increase your savings.
How much rate flexibility do you require?
Interest rates change regularly. These rate changes can be both good and bad for investments: Good if the rates increase, boosting the amount of money you earn from your investment, and bad if the rates decrease, reducing the amount of money your investments earn.
CDs avoid much of the market changes in interest rates by locking in a rate for the duration of the CD. These fixed rates can benefit you if the market rate falls, but can prevent you from maximizing your return if the interest rates rise during the maturation period of your CD.
Before investing in a Certificate of Deposit, consider how important it is to you to take advantage of any flexibility in interest rates. If you want to benefit from rates as they increase, you could choose shorter term CDs, remove the money when the CD matures, and reinvest it in another CD in order to lock in higher interest rates. This practice, called laddering. It often allows you to maintain the liquidity of your investment while also enjoying higher interest rates.
However, if you want a predictable return on your investment, lock in an interest rate for longer with a long-term CD. The interest rate will be higher than what you would get with a short-term CD and would provide you with a rate of growth you can rely on, regardless of any changes in the economy.
Are you prepared to lock away your funds for an extended period?
The primary disadvantage of long-term CDs is that they make your funds inaccessible for an extended period of time. If you need to withdraw money from the CD before it matures, you will face penalties that could wipe out any interest earned. Before you commit to a CD of any length, but particularly to a long-term CD, you should consider your overall financial liquidity.
While not every financial emergency or obstacle can be predicted, you should consider what your financial needs will be over the maturation term of the CD you choose. Do you anticipate any major needs that could force you to access your CD prematurely? Are there protections you can put in place to prevent early withdrawal from becoming a reality? Do your liquidity needs limit either the amount of money you can put into the CD, or the length of the one you choose?
Before choosing your CD, consult with a trusted financial partner, such as Bank of South Texas, to help you evaluate all three of these important questions. We can help you choose an option that aligns with your financial goals, accounts for your current and future needs, and protects you against early withdrawal penalties.
When you choose a Certificate of Deposit from Bank of South Texas, you enjoy a seamless and stress-free process that sets you up with a stable, high reward investment option. We are committed to helping you choose a CD whose terms you fully understand and that fully suits your circumstances. Let us be your trusted financial partner in all of your financial endeavors, from setting up savings accounts to choosing CDs. Our seamless, personalized banking experience is just a phone call away. Let’s talk!