What is a CD? Understanding Certificates of Deposit

No matter what method you use to save money, you've likely heard of a Certificate of Deposit (CD), but many overlook them due to a lack of understanding about how they work and their benefits.

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Key Takeaways

CDs offer higher, fixed interest rates compared to regular savings accounts, ensuring growth on your deposit.

The interest rate on a CD is guaranteed for its term, providing a secure investment option.

CDs support both short- and long-term savings goals, with terms tailored to each individual's financial planning.

CDs are FDIC-insured up to $250,000, adding an extra layer of security to your investment.

Upon maturity, CDs offer flexible options: Withdrawal without penalty, renewal for continued growth, or the creation of a CD ladder for diversified savings.

What is a CD?

Meeting Short- and Long-Term Goals

Benefits and Considerations

Options at Maturity

What is a Certificate of Deposit?

Put simply, a CD guarantees a fixed interest rate on your deposit, as long as you don’t withdraw the funds before the term ends.

These rates are higher than regular savings accounts and won’t change during the term. Interest compounds over time, growing your deposit.

In general, longer CD terms offer higher interest rates. Banks may adjust rates based on factors like the state of the economy, bank size, and deposit amounts.

It’s smart to shop around for the best CD rates to make the most of your money.

Grow Your Savings with a CD

Enjoy higher, fixed interest rates and secure growth on your deposit.

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Meeting Your Financial Goals with CDs

CDs are a great way to meet both short- and long-term savings goals.

Most CDs require a minimum deposit, which varies by term length and institution. At FSB, the minimum deposit to open a CD is $1,000.

How CDs Support Your Savings Goals

For short-term goals: If you’re planning a large purchase next year, a 12-month CD helps ensure your money is saved and growing, rather than spent.
For long-term goals: Long-term CDs with higher interest rates are great for retirement planning. Compounding interest over time helps maximize your deposit.

You can also open multiple CDs with different term lengths to align with both short- and long-term goals.

Benefits & Considerations of CDs

What are some of the benefits and considerations of CDs?

Safer than stocks and bonds: While CDs may offer a lower return than stocks and bonds, the return is guaranteed, eliminating market risk.
FDIC-insured: CDs are FDIC-insured for up to $250,000, providing an additional layer of security.
Early withdrawal penalties: It's essential to leave the money in a CD until it reaches maturity. If you need to withdraw early, penalties or fees may apply.
- Discuss exit options and potential penalties with a banker to make an informed decision.

Options at Maturity

When your CD reaches maturity, you have a few options:

Withdraw without penalty: If you need the money immediately, you can withdraw it without facing any penalties.
Renew or start a new CD: You can put the funds from your mature CD into another CD and start the process over. This is particularly beneficial for retirement savings.
Consider a CD ladder strategy: Helpful for individuals with multiple CDs. By holding CDs with varying terms and rates, you can continually reinvest and optimize your savings.

Achieve Your Goals with Flexible CD Options

CDs offer a safe, flexible way to grow your savings through compounded interest on your initial deposit. Whether you’re looking for a short- or long-term CD, options suit every stage of life.

FSB offers CD solutions tailored to help you reach your financial goals. Find out how you can start saving today!

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