5 Things To Know Before Opening a CD Account, According To an Expert

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One silver lining of higher interest rates is that you have the potential to earn more interest when you keep money in a CD account. And while these accounts can be a smart saving and investing tool, it’s important to understand how they work and who they can benefit before deciding to place your money in a CD.

GOBankingRates spoke with James Morgan, vice president of savings and deposits at Capital One, to find out the top things you need to know before opening a CD account.

CD Accounts Are Best for Those With Longer-Term Savings Goals

If you’re hoping to make a quick buck, a CD may not be the best choice.

“Although CD accounts can be a great savings option for anyone, they may not be the best option for someone looking for a quick return on their money,” Morgan said.

However, they can greatly benefit those who are saving for the longer term.

“CDs are a great choice for someone who has a middle- or long-term goal they are saving for, like a big trip, home improvement or even a new house,” Morgan said. “A CD is a smart and safe way to accrue guaranteed interest on your money.”

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There are shorter-term CDs available, but these usually offer lower interest rates.

“CDs with a 12-month or less term benefit consumers who have shorter-term goals, like an upcoming vacation or a personal expense, and may need to access their money sooner,” Morgan said. “Long-term CDs generally have a maturity term that is longer than a year and are recommended for consumers who do not expect to withdraw their money soon. This benefits consumers who are saving for long-term goals, like buying a house or saving for college.”

You’ll Know Exactly How Much Interest You Can Earn

“One of the advantages to opening a CD account is that they come with fixed rates,” Morgan said. “This means that in exchange for relatively lower liquid access to your money, CDs offer a fixed rate, unlike traditional savings accounts, which have variable interest rates that are subject to change.”

This means that even if the Fed lowers rates, your returns will not be affected.

“CDs also offer guaranteed returns, meaning your earnings are guaranteed, no matter how the market fares, and you will know how much money you will earn at the beginning of your term,” Morgan said. “Once you select your term length from the available options, Capital One 360 CDs offer a fixed rate and guaranteed returns that aren’t subject to market changes. A variety of terms are offered to align best with your needs and goals.”

CDs Are a Safe Place To Park Your Money

If you tend to be more risk-averse, you can have peace of mind with your money in a CD.

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“CDs are seen as safe savings options,” Morgan said. “Given CDs are FDIC-insured up to $250,000 for single account owners according to FDIC ownership guidelines, CDs provide a safe and straightforward way to keep your savings growing.”

CDs Are Less Liquid Than Other Accounts

While CDs have numerous benefits, you do have to keep in mind their relative liquidity compared to other savings vehicles.

“CDs require you to deposit your money for a certain term length, with the expectation that you will not withdraw your money until the end of the term or risk facing a penalty,” Morgan said. “CD account holders can’t easily access their money if an unanticipated need arises. There are early withdrawal penalties — if you do withdraw your money before the term, you might incur an early withdrawal fee.”

CDs Have a Relatively Low Barrier to Entry

“One of the great things about CDs is that anyone can open one,” Morgan said. “You don’t need a six-figure salary to invest in one. Capital One CDs have no minimum balance requirement.”

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