While you can create a substantial retirement fund from smart stock trades and a well-planned individual retirement account, some investors benefit more from guaranteed investments that provide high rewards. When you’re interested in a low-risk investment opportunity that offers high interest rates, certificates of deposit (CDs) are the perfect solution. With protection from the Federal Deposit Insurance Corporation (FDIC) and a secure, fixed interest rate, CDs offer stability in an uncertain world. You can’t predict the future, but you can prepare for it by choosing an account that offers favorable interest rates with little hassle. Check out the following four strategies to improve your CD rates and your financial future.
1. Invest for a Longer Period of Time
Banks offer higher interest rates on CDs in exchange for your agreement to leave the money invested for a pre-determined period of time. When you agree to leave the money in the CD for a longer period of time, you’ll earn an even higher interest rate. Most CD terms extend from three months to five years, but some banks offer investment terms of up to ten years. If you can afford to leave the money invested for a longer investment term, you’ll see greater rewards in the future.
2. Deposit As Much As You Can Afford
The amount of money you deposit initially can also impact your overall interest rate profoundly. Banks generally require minimum deposits for CDs, so it’s important to research the different types of accounts ahead of time. If you can reach a threshold with higher interest rates, you’ll earn more money on your total investment for the entire duration of your CD. Additionally, the higher interest rate will be applied to a larger balance, which will help your savings to grow even more quickly.
3. Avoid Withdrawals at All Costs
While CDs are an especially safe way to invest money, it is important to avoid making early withdrawals at all costs. CDs generally have high penalties for early withdrawals, so make sure that you can afford your investment before locking money into a long-term CD. If you aren’t sure whether or not you can commit to the CD’s investment term, you might want to consider a more flexible option like a savings account. You could also try an initial investment in a CD with a shorter investment period. While CDs with short investment terms have lower interest rates, you might save more by avoiding the hefty penalties associated with early withdrawals.
4. Choose CDs from Online Banks
In most cases, you’ll find the best interest rates for CDs from online banking providers. Most banks offer comparable CD rates, but you could find a special offer or limited discount available to new customers that maximizes the long-term value of your CD. In addition to your CD’s interest rate, be sure to consider the extra benefits and features you’ll receive with your account. Look for a CD that is easy to manage and that offers clear terms you can understand.