Whether you’re trying to save up for tuition to send your child to Oklahoma State University, to buy a new home or even to build a vacation fund, there are many ways to reach your long-term goals.
One of the best options is a certificate of deposit (CD). CDs differ from savings accounts in that you make a larger minimum deposit and pledge to keep the funds in the account for a specified time, depending on the term of your choosing. Although CDs don’t have the flexibility savings accounts have in that you can withdraw cash anytime you need it, CDs normally carry a better return on investment than savings accounts do, especially if you choose to do a longer term.
For instance, First United Bank offers flexibility in your savings preferences with CDs ranging from three months to five years, with a minimum deposit of $500 required and a return of up to 1.51% APY, if you opt for the five-year CD. However, long-term CD terms won’t be applicable to every life stage. To help you make the best decision when deciding on terms, here’s a look at four different life situations with the most appropriate CD for each and why.
Learn: How CD Laddering Works
Short Term Expenses: 6- to 12-Month CD
Say you’re going on vacation within the next year and want to build your savings before going. With this in mind, you’ll want to choose a shorter term CD, like six or 12 months, because it will mature right around the time you will need the money.
Building an Emergency Fund: 12-Month CD
If you need to build an emergency fund within the next year, a 12-month CD will provide you with more return than a traditional savings account would; this will help you reach your savings goal quicker.
Buying a Home: 12- to 24-Month CD
If you plan to buy a home in Oklahoma City, it’s important to have as much cash as you can on hand for a down payment and other expenses that might arise. A good goal would be to use a one- or two-year CD to build a portion of your savings at a healthy rate, so when it matures you have more money for your down payment and your home expenses.
Saving for College: 60-Month CD
CDs can help your family save for college expenses, too. The goal here is to start as early as you can, because it will help you receive the most benefit by using longer term CDs (think five-year), which generally earn the most interest. However, you can also use CDs to fund unplanned expenses such as books and other items financial aid might not cover. In this instance, you can use a shorter term CD — like six months — to give you a small return on investment.
Overall, the appeal of CDs is their versatility. This makes them ideal to help you meet your various financial goals, no matter how big or how small they are.
First United Bank is a GOBankingRates client.