With the right tools at your disposal, you can save and invest in your future. Doing some simple things can help you establish a solid foundation for your personal finances. One option is to increase your money by putting it into a CD. If you’re wondering if CDs are worth the time, continue reading our post to see if CDs are worth the investment.
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Table of Contents
What Is a CD?
A CD is a type of bank account that allows you to save your money for a set amount of time called a term. CDs usually have a fixed savings interest rate. A fixed interest rate won’t change over time. As a low-risk investment, CDs won’t offer any surprises: You will know the amount of money you will have earned once the term has completed.
Are CDs a Good Investment?
While keeping the current economic climate in mind and your personal financial situation can help you figure out if a CD is a good investment for you. One of the highlight features of a CD is its certainty. Because the rate is fixed, there is no uncertainty with what you can earn in your future. Also, most banks pay higher rates on CDs than they do on savings accounts.
However, if you are the type that lives paycheck to paycheck and want to make money through investing, then CDs may not be the way to go. Because you have to lock your money up through CDs, pulling the money out too early can have a negative impact on you.
What To Consider Before Investing In CDs in 2020
CDs are great for those who have an extra amount of money in their savings and want a low risk investment. CDs have actually been around since the early days of banking, and other investment options have come after. Because they are old, many question their relevance in todays banking world. Over the last 10 years, the finance world was dominated by the aftermath of the Great Recession. This has caused CD rates to fall nearly 10 percent.
Can You Lose Money in a CD?
The best thing about an investment with a CD is that you only lose money if you decide to tamper with your CD. Unlike stocks, CDs will guarantee a certain amount earned by the end of the term. As long as you leave your money in the CD without touching it, you won’t lose money in a CD.
The other thing that makes CDs worth it from a risk standpoint is that they are insured by the Federal Deposit Insurance Corp. So, even if the bank fails, you won’t lose what you invested.
Do CDs Pay Interest Monthly?
The duration of the term of the CD will tell you when the interest is paid. In most cases, the interest earned is paid in full at the end of your CD term. Terms can range from six months to five years. When shopping for a CD, it is important to look at the terms and compare them to your current financial situation. There are some CDs out there that pay monthly, but they will only pay the interest earned that month, not the amount that you will earn over the term.
Do CDs Build Credit Overall?
When making any kind of financial decision, you should always think about whether or not it will affect your credit rating. When it comes to CDs, it is worth asking yourself if this is the type of investment for you.
On a very basic level, CDs do not directly affect your credit score. However, some people use this product to inadvertently increase their rating. They do this by taking out a secured loan against the CD. As you pay the loan back, your credit score will increase. Ultimately, however, investing in a CD alone will have neither a positive nor a negative effect.
Investing in a CD doesn’t have to be difficult as long as you plan and determine that this is the type of investment for you. If your goal is to build up your savings while still taking care of bills and emergencies, then a CD isn’t right for you. However, if you have extra money from your savings laying around, then this type of investment can take a lot of guesswork out of saving. For more posts like this, check out our list of CD Rates and bank guides.