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CDs to Invest In for June 2023
If you're looking for a low-risk investment option that can help you grow your savings, certificates of deposit (CDs) are an excellent choice. With their fixed interest rates and guaranteed returns, CDs can provide a reliable source of income and help you reach your financial goals faster.
But with so many different types of CDs available, how do you choose the right one for your investment strategy? A closer look at some of the best CDs to invest in, including high-yield CDs, jumbo CDs, and ladder CDs, and explore the pros and cons of each.
Whether you're a first-time investor or a seasoned pro, this guide will help you make an informed decision and build a strong CD portfolio that meets your unique financial needs.
Our certified financial planner also offers personalized financial advice.
Key Takeaways
- Certificates of Deposit (CDs) are a type of savings account with a fixed term, which pay a fixed interest rate higher than traditional savings accounts. They are considered low-risk investments.
- CDs work by depositing a fixed amount of money for a specific term, with the bank paying a predetermined interest rate. At the end of the term, investors can withdraw their investment plus interest, or roll it over into a new CD.
Disclaimer
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.
Certificate of Deposit
Certificates of deposit, commonly known as CDs, are a type of financial product offered by banks and other financial institutions. Essentially, CDs are a type of savings account with a fixed term, meaning that you agree to keep your money in the account for a specific length of time, typically ranging from a few months to several years.
In exchange for this commitment, the bank pays you a fixed rate of interest that is usually higher than the interest rate offered on traditional savings accounts. CDs are a low-risk investment option, making them a popular choice for investors who want to earn a guaranteed return on their money without exposing themselves to the volatility of the stock market.
How Does A Certificate Of Deposit (CD) Work?
Certificates of deposit (CDs) are a type of savings account that allows you to earn a fixed interest rate in exchange for depositing your money for a fixed period of time. Essentially, when you purchase a CD, you are lending money to a bank or financial institution for a set term, usually ranging from a few months to several years.
In return, the bank pays you a predetermined interest rate, which is typically higher than what you would earn in a regular savings account. The longer the term of the CD, the higher the interest rate you can expect to receive.
Why is a certificate of deposit considered a safe investment?
Once you purchase a CD, your money is locked in for the duration of the term, and you cannot withdraw it without incurring early withdrawal penalties. This makes CDs a relatively low-risk investment, as you know exactly how much money you will earn and when you will receive it.
At the end of the CD term, you can choose to roll over your investment into a new CD or withdraw the money and use it as you see fit. If you choose to withdraw the money, you will receive your initial investment plus the interest earned over the term.
Overall, CDs can be a great option for investors who want a low-risk way to earn a guaranteed return on their money. By understanding how they work and choosing the right CD for your investment goals, you can build a strong portfolio and achieve your financial objectives.
Types of CD
There are several different types of certificates of deposit (CDs) available to investors, each with its own unique features and benefits. Here are some of the most common types of CDs:
1. Traditional CDs
These are the most basic type of CD, where you deposit a fixed amount of money for a fixed term, typically ranging from a few months to several years. The interest rate is fixed for the entire term, and you cannot withdraw the money without paying a penalty.
2. High-Yield CDs
These CDs offer higher interest rates than traditional CDs, but typically require a larger deposit and a longer term commitment. They are a good option for investors who are willing to lock in their money for a longer period of time in exchange for a higher return.
3. Jumbo CDs
These are similar to traditional CDs, but require a larger deposit, typically ranging from $100,000 to $1 million. In exchange for the larger deposit, you may receive a higher interest rate than you would with a traditional CD.
4. Callable CDs
These CDs allow the bank to call back your investment before the end of the term. While they offer higher interest rates than traditional CDs, they are considered riskier, as you could potentially lose out on future interest earnings if the bank decides to call back the CD.
5. Bump-Up CDs
These CDs allow you to "bump up" your interest rate if rates increase during the term of the CD. While they offer some flexibility, they typically come with lower initial interest rates than traditional CDs.
6. Ladder CDs*
These involve investing in multiple CDs with different maturity dates, allowing you to take advantage of higher interest rates on longer-term CDs while still maintaining some liquidity with shorter-term CDs.
7. Jumbo CDs
Jumbo CDs require a larger deposit than traditional CDs, typically ranging from $100,000 to $1 million or more. In exchange for the larger deposit, you may receive a higher interest rate than you would with a traditional CD. Jumbo CDs are a good option for high net worth investors who are looking for a low-risk way to earn a guaranteed return on their money.
8. Brokered CDs
Brokered CDs are CDs that are sold through a brokerage firm or financial advisor, rather than directly through a bank. Brokered CDs often offer higher interest rates than traditional CDs, as the brokerage firm can negotiate better rates with banks and financial institutions. However, brokered CDs may come with higher fees and less flexibility than traditional CDs.
9. IRA CDs
IRA CDs are CDs that are held within an individual retirement account (IRA). IRA CDs offer tax advantages, as the interest earned on the CD is tax-deferred until you withdraw the money from the IRA. IRA CDs are a good option for investors who want a low-risk way to save for retirement.
By understanding the different types of CDs available, you can choose the one that best fits your investment goals and risk tolerance.
When considering Jumbo CDs, brokered CDs, or IRA CDs, it's important to consider the minimum deposit, interest rate, and other features to find the best option for your investment goals and risk tolerance.
Be sure to do your research and compare rates and fees from different banks and financial institutions before making a decision.
How to choose a CD
Choosing the right certificate of deposit (CD) can help you achieve your investment goals and maximize your returns. Here are some factors to consider when selecting a CD:
1. Term
Consider how long you are willing to lock up your money. Longer terms typically offer higher interest rates, but also mean that you will not have access to your money for a longer period of time. If you need to access your funds in the near future, a shorter-term CD may be a better option.
2. Interest rate
Look for a CD with a competitive interest rate that will help you earn a higher return on your investment. Compare rates from different banks and financial institutions to find the best deal.
3. Minimum deposit
Some CDs require a minimum deposit, while others do not. Make sure you choose a CD that fits within your budget and investment goals.
4. Penalty fees
Most CDs charge a penalty fee if you withdraw your money before the end of the term. Make sure you understand the penalty fees associated with the CD and choose one that aligns with your liquidity needs.
5. FDIC insurance
Look for a CD that is backed by the Federal Deposit Insurance Corporation (FDIC), which insures deposits up to $250,000 per depositor, per insured bank. Basically you seek out a FDIC insured bank or financial institution. This can provide peace of mind and protect your investment in the event of a bank failure.
6. Type of CD
Consider the different types of CDs available, such as high-yield CDs, jumbo CDs, callable CDs, bump-up CDs, and ladder CDs, and choose the one that best fits your investment goals and risk tolerance.
By considering these factors and doing your research, you can choose a CD that meets your financial needs and helps you achieve your investment objectives.
Are CDs safe if the market crashes?
Certificates of deposit (CDs) are generally considered to be a safe investment, even in the event of a market crash. This is because CDs are FDIC-insured, which means that they are backed by the full faith and credit of the US government up to $250,000 per depositor, per insured bank. This insurance protects your principal investment and interest earnings in the event that the bank fails.
However, it's important to note that CDs are subject to interest rate risk, which means that if interest rates rise, the value of your CD may decrease. Additionally, if you need to withdraw your money from a CD before the end of the term, you may be subject to early withdrawal penalties, which could eat into your earnings.
In the event of a market crash, CDs can be a good option for investors who are looking for a low-risk way to protect their principal investment and earn a guaranteed return.
However, it's important to consider the interest rate and liquidity needs before investing in a CD, and to diversify your portfolio with other investments to mitigate risk. Consult with a financial advisor to determine the best investment strategy for your individual needs and goals.
Where do you put money when CD rates are low?
When considering alternative investments to CDs, it's important to consider your investment goals, risk tolerance, and time horizon. Be sure to do your research and consult with a financial advisor before making any investment decisions. Additionally, it's important to diversify your portfolio with a mix of investments to mitigate risk.
What are Alternatives to CDs?
While certificates of deposit (CDs) can be a low-risk way to earn a guaranteed return on your money, there are several alternative investments to consider, depending on your investment goals and risk tolerance. Here are some alternatives to CDs:
1. High-yield savings accounts
High-yield savings accounts offer higher interest rates than traditional savings accounts, without the fixed term commitment of a CD. While the interest rates may fluctuate, they generally offer more flexibility than CDs.
2. Money market accounts
Money market accounts are similar to high-yield savings accounts, but often require a higher minimum deposit and offer check-writing privileges.
3. Bonds
Bonds are debt securities issued by companies, municipalities, or the federal government. They typically offer higher yields than CDs, but also come with more risk. Bonds can be purchased through a broker or directly from the issuer.
4. Mutual funds
Mutual funds are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, and other assets. Mutual funds can offer higher returns than CDs, but also come with more risk.
5. Exchange-traded funds (ETFs)
ETFs are similar to mutual funds, but trade on an exchange like a stock. ETFs can offer diversification and lower fees than mutual funds, but also come with more risk.
6. Stocks
Stocks represent ownership in a company and can offer higher returns than CDs, but also come with more risk. Stocks can be purchased through a broker or online brokerage account.
When considering alternative investments to CDs, it's important to consider your investment goals, risk tolerance, and time horizon. Be sure to do your research and consult with a financial advisor before making any investment decisions.
CDs vs. Other Savings Accounts
CDs differ from other savings accounts in some important aspects:
CDs vs. money market accounts
CDs are time deposits that offer a fixed interest rate for a specific term, which can range from a few months to several years. Typically, the longer the term of the CD, the higher the interest rate. CDs often have early withdrawal penalties if you withdraw your money before the term is up.
A money market account is an interest-bearing account that typically offers a variable interest rate and is often linked to a debit card or check-writing privileges. MMAs generally have lower interest rates than CDs, but they offer greater flexibility to access your money without penalty.
CDs vs. high-yield savings accounts
A high-yield savings account is a type of savings account that typically offers a variable interest rate that is higher than the interest rate of a traditional savings account.
One advantage of a high-yield savings account over a CD is that you can typically withdraw your money at any time without penalty, whereas with a CD, you may face penalties if you withdraw your money before the end of the term.
Additionally, high-yield savings accounts offer more flexibility since you can deposit and withdraw money as needed, whereas CDs require a lump sum deposit upfront.
However, CDs can offer higher interest rates than high-yield savings accounts for longer terms, and the interest rate on a CD is fixed for the term of the CD, providing more certainty for your earnings. Ultimately, the best choice for you depends on your individual financial goals and needs.
CDs vs. traditional savings accounts
CDs usually offer higher interest rates compared to traditional savings accounts, but require a fixed term commitment and early withdrawal penalties. In contrast, traditional savings accounts offer more flexibility and easier access to funds, but with lower interest rates.
So, if you're looking for a low-risk, flexible way to save money, a traditional savings account may be a good option. However, if you're willing to commit to a fixed term and can afford to lock your money away for a while, a CD might be the better choice.
Pros and cons of CDs
Pros
- Low-risk investment: CDs are considered to be a low-risk investment because they are FDIC-insured up to $250,000 per depositor, per institution.
- Guaranteed return: CDs offer a guaranteed return, which means you know exactly how much money you will make at the end of the term.
- interest rate: The interest rate on a CD is fixed for the entire term, which means you don't have to worry about changes in the market or fluctuations in interest rates.
- Easy to open: CDs are easy to open and can be opened online, over the phone, or in person at a bank or credit union.
- No fees: CDs typically don't have any fees associated with them, so you won't have to worry about paying any maintenance or transaction fees.
Cons
- Limited liquidity: CDs have limited liquidity, which means you can't access your money until the CD matures without incurring a penalty.
- Lower returns: CDs typically have lower returns compared to other types of investments such as stocks, mutual funds, or real estate.
- Opportunity cost: By locking your money into a CD, you miss out on the potential for higher returns from other investments.
- Inflation risk: CDs are vulnerable to inflation risk, which means the purchasing power of your money may decrease over time if the inflation rate exceeds the interest rate on the CD.
- Early withdrawal penalty: If you need to withdraw money from a CD before the maturity date, you will usually have to pay a penalty, which can negate any interest earned.
Who offers no-penalty CD rates?
Ally Bank and CIT Bank are two of the few financial institutions that offer no-penalty CDs rates.
What's the difference between APY and interest rate?
The annual percentage rate (APR) and annual percentage yield (APY) are two different ways of expressing the interest rate on a financial product like a savings account, CD, or loan.
While both represent the percentage of interest earned on a deposit or charged on a loan over the course of a year, there is a subtle difference between the two:
Interest Rate
The interest rate is the percentage of interest that you earn or pay on a deposit or loan, expressed as a simple annual rate. For example, if a savings account has an interest rate of 1% per year, then you will earn 1% of your account balance in interest over the course of a year.
Annual Percentage Yield
The APY, on the other hand, takes into account the effect of compounding interest. Compounding interest means that the interest earned on a deposit is added to the account balance, and then interest is earned on the new balance in the next period.
APY is a more accurate measure of the total amount of interest you will earn or pay over the course of a year, as it takes into account the compounding effect.
For example, if a savings account has an APY of 1% per year, and interest is compounded monthly, then you will earn slightly more than 1% on your account balance over the course of a year, because the interest earned in each month is added to the balance, and interest is earned on the new balance in the next month.
In summary, the interest rate is a simple annual rate that doesn't take into account the effect of compounding interest, while the APY is a more accurate measure of the total amount of interest you will earn or pay over the course of a year, as it takes into account the compounding effect.
Top CD rates by term
The interest rates offered for a CD depends both on the amount and the term duration.
Best 1-Year CD Rates
| CD | Rate |
|---|---|
| Premier Members Credit Union | 5.25% APY |
| Premier Members Credit Union | 5.25% APY |
| Forbright Bank | 5.25% APY |
| Bread Savings | 5.20% APY |
| CFG Bank | 5.17% APY |
| TotalDirectBank | 5.16% APY |
| Colorado Federal Savings Bank | 5.15% APY |
| Synchrony Bank | 5.15% APY |
| Spectra Credit Union | 5.15% APY |
| BMO Harris | 5.10% APY |
| Limelight Bank | 5.10% APY |
| My eBanc | 5.10% APY |
| Genisys Credit Union | 5.09% APY |
| First Internet Bank | 5.06% APY |
What are the best CD interest rates for three years?
| CD | Rate |
|---|---|
| Credit Human | 4.90% APY |
| Summit Credit Union | 4.85% APY |
| Quorum Federal Credit Union | 4.85% APY |
| Lafayette Federal Credit Union | 4.84% APY |
| MYSB Direct | 4.76% APY |
| CFG Bank | 4.60% APY |
| Hughes Federal Credit Union | 4.60% APY |
| Seattle Bank | 4.60% APY |
| U.S. Senate Federal Credit Union | 4.60% APY |
| Crescent Bank | 4.55% APY |
| First Internet Bank | 4.54% APY |
| Mountain America Credit Union | 4.50% APY |
| 5star Bank | 4.50% APY |
| Langley Federal Credit Union | 4.50% APY |
| Apple Federal Credit Union | 4.50% APY |
| Pima Federal Credit Union | 4.50% APY |
| Signature Federal Credit Union | 4.50% APY |
| Bread Savings | 4.50% APY |
| Utah First Credit Union | 4.50% APY |
| The Federal Savings Bank | 4.50% APY |
Are there 20-year CDs?
Unlike bank CDs, brokered CDs can have much longer terms, ranging from 20 to 30 years in some cases. Moreover, brokered CDs usually provide better interest rates than standard bank CDs, along with greater flexibility than traditional bank CDs.
Tips on saving with CDs: building a CD ladder
Building a CD ladder is a popular investment strategy that involves purchasing multiple certificates of deposit (CDs) with different maturity dates. The CDs are staggered so that they mature at different times, providing investors with access to their funds on a regular basis while earning a higher rate of interest than a traditional savings account.
In this way, a CD ladder can be an effective way to earn a consistent return on investment while maintaining liquidity. In this post, we'll explore the basics of building a CD ladder and how to get started with this investment strategy.
Find And Compare The Highest Interest Rates
Online banks seems to offer higher interest rates than traditional brick-and-mortar banks. However, make sure that the online bank you choose to work with is insured by the FDIC or the National Credit Union Administration (NCUA).
How can I calculate earnings from a CD?
Calculating your earnings from a certificate of deposit (CD) involves taking into account the interest rate, the deposit amount, and the length of the CD term. Here's how you can calculate your earnings from a CD:
- Determine the interest rate: The interest rate on a CD is expressed as an annual percentage yield (APY). You can find the APY on your CD disclosure statement or by contacting your bank or financial institution.
- Determine the deposit amount: The deposit amount is the amount of money you put into the CD.
- Determine the CD term: The CD term is the length of time you agree to leave your money in the CD. It can range from a few months to several years.
- Use a CD calculator: Many banks and financial websites offer CD calculators that can help you estimate your earnings. These calculators typically ask you to input the APY, deposit amount, and CD term, and will calculate your earnings based on these inputs.
Alternatively, you can use a formula to calculate your earnings manually. The formula for calculating CD earnings is:
Interest earned = deposit amount x interest rate x (CD term / 365)
How much does a $10000 CD make in a year?
For example, if you deposit $10,000 into a 1-year CD with a 2% APY, your interest earned would be:
Interest earned = $10,000 x 0.02 x (365 / 365) = $200
Keep in mind that if you withdraw your money from the CD before the end of the term, you may be subject to early withdrawal penalties, which could reduce your earnings.
What is the best CD rate for $100000?
The best CD rate for $100,000 can vary depending on the current market conditions and the specific terms offered by different banks and financial institutions. It's always a good idea to shop around and compare rates from multiple providers to find the best deal.
As of May 2023, the highest CD rates for a $100,000 deposit are typically offered on jumbo CDs, which are CDs that require a minimum deposit of $100,000. Some of the highest rates currently available for jumbo CDs include:
- 2.00% APY for a 2-year jumbo CD from Marcus by Goldman Sachs
- 1.95% APY for a 2-year jumbo CD from Ally Bank
- 1.75% APY for a 2-year jumbo CD from Discover Bank
It's worth noting that these rates are subject to change and may not be available in all locations. It's also important to consider factors other than just the interest rate, such as the CD term, early withdrawal penalties, and the financial stability of the institution offering the CD. Before opening a CD, it's always a good idea to read the fine print and consult with a financial advisor if you have any questions.
Bay Street Capital Holdings
Bay Street Capital Holdings is a financial company that provides independent investment advisory, wealth management, and financial planning services to enhance total assets and income while efficiently managing overall risk and volatility.
The company's founder, William Huston, has been recognized as one of Investopedia's Top 100 Financial Advisors for 2022. Bay Street Capital Holdings was established to foster diversity and aid emerging fund managers and entrepreneurs.
Additionally, the firm was a finalist in the Asset Manager for Corporate Social Responsibility (CSR) category, out of more than 900 firms in the US.
Sources
https://www.bloomberg.com/markets/rates-bonds/government-bonds/us?sref=AXb0mKfI
https://www.investopedia.com/pros-and-cons-of-cds-5223947
https://www.forbes.com/advisor/banking/cds/best-no-penalty-cd-rates/
https://www.cnet.com/personal-finance/banking/cds/how-to-build-cd-ladder/#how-a-cd-ladder-works
