Certificate of Deposit #
| Yield | Liquidity |
|---|---|
| Low | Low |
TLDR: A certificate of deposit is a great way to lock in higher interest rates than a normal savings account for a liquidity penalty.
A certificate of deposit (CD) is a type of savings vessel where a bank guarantees a higher interest rate in exchange for your agreement not to withdraw the money for some fixed period. This period is called a “maturity period”, and can vary from anywhere from a couple months to several years.
If you’re looking for a CD, there are two main factors you should consider:
- the interest rate
- the early withdrawal penalty
- In case you do need money sooner due to a future emergency, you should check how much the bank penalizes you for withdrawing early.
There’s no tax incentive for CDs, however there’s also no maximum that you can put into it in a given year. So, if you have money in a normal savings account that you don’t think you need for a while, you should put it into a CD.
Further Reading #
- https://www.nerdwallet.com/article/banking/what-is-a-cd-ladder
- A guide to an efficient way of “stacking” CDs for steady, regular access to money
- https://www.bankrate.com/banking/cds/best-5-year-cd-rates/
- A list of the best CD rates for a 5 year maturity period (you can also filter by other periods)