Discover the Little-Known Perks of Certificates of Deposit

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Certificates of deposit come with unexpected benefits you may not have thought of. Read on for the CD benefits that might make them right for you. 

Certificates of deposit (CDs) come with plenty of obvious benefits. For one thing, when you invest in a CD, you can often earn a higher rate of return than you would even in a high-yield savings account. You’ll also have peace of mind, since you can buy FDIC-insured CDs. This means there’s really no risk your money will be lost.

But while most people are aware of those perks, there are also some little-known benefits you may not be aware of. Here are a few of them worth considering when you’re deciding if a CD is right for you.

1. Your CD can help you keep your money where it belongs

When you buy a CD, you typically have to commit to keeping your money locked up in it for the duration of the CD term so you aren’t penalized. This is often viewed as a downside of a CD compared to a savings account, since a savings account allows you to take money out whenever you want.

But, for some people, the fact that you have to leave your money in a CD is actually a perk even if it may not seem like it. If you aren’t great at managing your money and don’t have the willpower to leave your savings in the bank, you may be more likely to actually keep your hands off your funds if there’s a real financial consequence for not doing so. This can make accomplishing your goals more likely.

Let’s say you’re saving for a home down payment for a house you’re going to buy in a little over two years. If you choose a 2-year CD, you can’t get the cash out without a penalty until you’re ready to buy. But if you put your money in savings with no consequences for early withdrawals, you might be tempted to “borrow” from the down payment fund when you have something you want to buy — and perhaps not put the money back.

If you have a hard time resisting temptation, try stashing your money in a CD and seeing if that works for you.

2. CDs can provide a source of steady income

Because money in CDs has to stay locked up for the duration of the CD term, many people wrongly assume they won’t get any benefit from their certificate of deposit for months or years until the term ends. But that’s not necessarily the case.

Some CDs allow you to withdraw the interest that you are earning at any time without a penalty. Because of this, you may be able to buy a CD or two (or more) and receive regular monthly income interest from it that you can spend or do whatever you like with.

Barclays is one example of a bank that allows this. You can request a withdrawal of interest earned without any penalties on a monthly basis and can put the money into your Barclays savings account or an external account that has been verified.

Since your interest is guaranteed when you invest in a CD, the income you get using this approach is very predictable. If you need money you can count on coming in regularly, this is a major perk.

3. CDs allow you to take a very hands-off approach to investing

When you invest in a CD, your rate is guaranteed for the CD term. This is different from high-yield savings accounts, where your APY can change as market conditions shift.

Since you know exactly how much your CD is going to earn you and you don’t have to worry about that changing, you don’t really have to pay attention to this investment at all. You don’t have to watch for rate drops or worry about having to move your money to another savings account paying a better rate if your account terms change. And, unlike stocks, you don’t have to worry about losing your funds, either.

If you just want to put money into an account, not have to think much about it, and know it’s earning you a predictable return, a CD is a great choice.

These little-known perks may be just enough to convince you investing in a CD is right for you. Check out some of the best CD rates we’ve found to see if this investment is one you want to consider.

These savings accounts are FDIC insured and could earn you 11x your bank

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.

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