4 Underrated Reasons Why You Should Invest in CDs

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CDs are a safe place to get a fixed interest rate on your money. Check out these underappreciated reasons why investing in CDs could be a good idea. [[{“value”:”

Certificates of deposit (CDs) are a popular way to grow your savings. They offer fixed interest rates over a set period. They’re also available through FDIC-insured banks, so they’re considered a safe investment option. And they offer some impressive payouts — the best CD rates are currently above 5.50%.

If you’re familiar with CDs, you probably already have an idea of how they work and their benefits. Here are the underrated reasons why CDs could be the place for your savings.

1. They make it easier to commit to saving money

When you put your money in a traditional CD, you need to keep it there for the full term. On a 2-year CD, that means locking up your money for two years. If you take it out sooner, you’ll pay an early withdrawal penalty. This is normally a few months of interest.

While this seems like a drawback, it could help with sticking to your savings plan. If you want to keep $5,000 in savings, and you put it in a savings account, nothing is stopping you from withdrawing it. You could later find yourself tempted to take out money to pay for a vacation or the latest smartphone.

You’re less likely to do that with a CD. When you know you’ll pay an early withdrawal penalty, there’s more motivation not to take out your money.

2. This may be the highest that rates will get

CD rates are excellent right now. They’ve gone up quite a bit because the Federal Reserve has been raising benchmark interest rates. But it’s expected to lower rates at some point this year. If it does, then banks will almost certainly lower their CD rates.

There’s no guarantee of what will happen with CD rates, but there’s a good chance we’re at the peak. If you’re interested in opening one, it makes sense to lock in a rate now.

3. They’re a low-maintenance investment

Because of how CDs work, you don’t need to spend any time managing them. Once you’ve picked a CD and deposited your money, there’s nothing to do until the maturity date.

Most investment options aren’t so hands-off. When you invest in stocks, you spend time researching companies and managing your portfolio. That doesn’t mean stock investing is worse than CD investing. Most people should invest in stocks because of the returns they offer. But CDs take far less time, which is one of the reasons they’re such a great short-term investment.

4. They’re more flexible than you might think

One of the reasons people avoid CDs is because they don’t want to lock up their money for a long time. But CD investing can be more flexible than many realize.

There are CDs with terms ranging from one month to 10 years, and just about everything in between. You can open as many CDs as you want, so some investors open multiple CDs with different maturity dates. This strategy is known as CD laddering. You open CDs based on when you’re going to need the money.

While you can’t withdraw your initial deposit early, some banks let you withdraw the interest you earn. If you get a CD that allows this, you’ll be able to use the interest as a form of steady income.

The APYs are definitely the most eye-catching CD perk. And they are one of the best reasons to open a CD right now, especially since they may drop later in the year. But they’re not the only reason, as there are plenty of other underrated benefits of investing in CDs.

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