Three Major Benefits of Short Term CDs

Posted in CD Rates

short term cdCertificates of deposit (or CDs) are considered a “time deposit,” which means depositors are obligated to keep their funds on deposit for a specific period of time in order to earn the promised interest rate. There are short-term CDs that mature within a couple of months, as well as long-term CDs that can take years to mature. Even though the best CD rates are often tied to longer-term accounts, there are several benefits associated with opting for a short-term CD instead.

 

Advantages of Choosing a Short-Term CD

1. CD Rates: Short-term CDs tend to pay lower interest rates than long-term CDs, but still typically pay more than a standard savings account. When seeking a safe place to keep savings that will also hedge against inflation, a competitive short-term CD — like a 6-month CD — may be a better option than even a high-yield savings account.

2. Extremely Low Risk: Most investments require the depositor to take on some risk in order to enjoy a decent return, but when it comes to savings, it’s not a good idea to risk those funds. Short-term CDs allow depositors to earn a slightly higher interest rate while protecting the principal against any market risk. The only way a CD can lose money is if the depositor makes a withdrawal prior to maturity, suffering an early withdrawal penalty that may or may not dip into the principal investment.

3. Liquidity: A long-term CD requires the depositor to lose access to his or her funds for an extended period of time — like a year or more — in order to earn the specified interest rate. For those who are saving in case of a financial emergency or for a short-term goal, a CD with a maturity date of less than a year from account opening ensures there is some liquidity maintained.

CDs are a great option for savers who are interested in earning interest on their deposits, but are risk-averse. The primary goal of depositing in a CD should be to protect savings in a federally-insured account — the interest earned is a nice reward for keeping funds on deposit. Before investing in a CD, be sure you have identified the goals you have for your money and that a CD is the best option for reaching those goals.

 

Get great information like this every week with the GoBankingRates newsletter

We would love to hear your comments and feedback

Best CD Rates

Institution
Featured Rate (APY)
1.15%
2 Year CD
1.05%
1 Year CD
1.17%
2 Year CD
1.10%
2 Year CD
Institution
Best Rate (APY)
Kauai Government Employees Credit Union
1.56%
1 Year CD
Triboro Postal Credit Union
1.51%
1 Year CD
Pfd Firefighters Inc. Credit Union
1.26%
1 Year CD
Free, all-inclusive, and truly local: GoBankingRates.com is the only source for interest rates from over 5000 banks and credit unions
AdSpeed – GBR – Default – Articles – RR2 Financial Resources Right Rail
AddThis Trending Article Widget
Blank Space