Sports fans: Are you thinking of repping your team in person all season round? It may be time to invest in those season tickets. But if you don’t have the extra money hanging around to buy them, it could be helpful to investigate ways to make the most of what you do have. That includes considering a certificate of deposit (CD) account, which can help grow your savings so you can finally see your favorite team during future sports seasons.
Take a dive into the CD details to find out if you could benefit from opening an account.
What is a CD?
A certificate of deposit account is a type of account you can deposit money into, which then earns interest over time. After the term for your account is over, you may be able to withdraw your money plus interest or put all the money into a new CD account.
Terms and rates for a CD may vary, depending on where you open one.
Benefits of CDs
Safety
CDs are typically insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA), making this a relatively safe option to keep your money until you’re ready to use it. And if the bank, credit union or other financial institution you got it from were to fail, you may be able to receive your money back up to a limit.
Higher Rates
Many financial institutions that offer CDs may offer a higher interest rate and annual percentage yield (APY) than other ways to save money such as high-yield savings accounts or savings bonds. This is because when you open a CD account, you agree to keep the money in the account until your term is over. Keep in mind that consumers typically get penalized with a fee if they withdraw their money before the CD matures.
Predictable Returns
Unlike investing in the stock market, your return on investment with a CD can be predictable, and, generally, it is easy to determine how much money you can make back over time since rates are typically fixed for the entire term. So, if you’re saving for something specific that has an end date, like those season tickets, you can do some quick math to decide which terms and interest rates you may need to secure to meet this goal in time.
CD Laddering
Many consumers who open CDs take advantage of a technique called CD laddering in which you open multiple CDs with different term lengths. This would allow you to divide your initial investment into equal parts and deposit each into a different account and as each account matures, you may be able to reinvest your money or withdraw. This type of strategy may allow you to have access to portions of your money while still potentially taking advantage of longer terms or higher rates.
Minimal Maintenance Fees
With other accounts, you may get charged monthly fees which can cut into your interest rate earnings. With CD accounts, you typically don’t get charged monthly maintenance fees, which means you may be able to keep all the earnings you acquired as long as you don’t withdraw money before the term ends.
Consider Before Opening
There are a couple of factors you should consider before opening a CD account. Since every account holder’s situation and circumstances are different, it may help you to consult a financial advisor to help understand if you can benefit from a CD.
Penalties
Once you deposit your money into a CD, you generally won’t be able to withdraw any of it without a penalty fee before it matures. Unless you are completely certain you won’t touch the money until the term is over or if you’re okay with potentially losing part or all of your interest earnings, you may want to opt for another type of account or another savings strategy.
Inaccessibility
If you’re saving for an emergency fund or something else that requires you to tap into some money quickly, a CD may not be the appropriate account to open. Other savings accounts also typically come with a debit or automated teller machine (ATM) card, which would allow you to get cash almost instantly. A CD account usually doesn’t offer those cards.
Inflation
Prices for goods and services may increase while your money is in a CD. If the inflation rate outpaces the rate of return on your earnings, it may not be able to cover as much when you decide to spend it. However, this is also typically a risk with other types of accounts.
Season Tickets May Soon Be Yours
No matter what you decide to use a CD for, it helps to do your own research and talk to professionals who can help you find out if it’s a good choice for your own financial goals. If you start planning and investing now, you may even be able to grab those season tickets sooner rather than later.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner.
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