Money sitting in a low-paying savings account could be earning considerably more. Certificates of deposit, or CDs, let savers lock in a fixed interest rate for a set period, giving them a predictable return without taking on the ups and downs of the stock market. Some of the most competitive CDs are currently paying around 4% or more, with select offers approaching 5%.
The tradeoff is access. A CD generally requires leaving the money deposited until its maturity date, and withdrawing it early can trigger a penalty. That makes CDs better suited for money you know you will not need immediately, rather than emergency savings.
One way to avoid locking up all of your money at once is to build a CD ladder. Instead of putting $5,000 into one CD, for example, a saver could divide the money among several CDs with different maturity dates. As each CD matures, the money becomes available to spend, move elsewhere or reinvest into another CD. The strategy can provide regular access to portions of the money while allowing the rest to continue earning a fixed return.
Shopping around matters, too. Bankrate’s latest survey puts the national average one-year CD yield at 2.10%, while some competitive CDs are paying more than twice that amount. CD Valet’s free APY Checkpoint lets savers enter a CD’s APY, term and deposit amount to see how the offer compares with more than 40,000 CD rates from over 5,000 banks and credit unions nationwide. The tool scores the rate from Excellent to Bad and shows other available offers.
CDs at FDIC-insured banks and federally insured credit unions are protected within federal insurance limits. The standard coverage is generally $250,000 per depositor or member, per insured institution, for each applicable ownership category, although coverage can be higher depending on how accounts are structured. For savers who can leave some money untouched for a while, a well-chosen CD — or a ladder of several CDs — can turn idle cash into predictable income without exposing the principal to stock-market swings.
