Insights and Opinions on Certificate of Deposits
- fotaquest
- Mar 25, 2024
- 5 min read
Updated: Feb 4
Insights and Opinions on Certificate of Deposits:
By Lars Guo
Published: March 25, 2024
Opening message: Hi Folks! I hope you are enjoying these blogs! Today’s article is about Certificate of Deposits also known as CDs. I am going to cover how this is a hobby, what a CD is, pros, cons, advice, would I do CDs myself, why are they important, and a closing message. Before we dive into this article, this is a disclaimer that I am not a financial advisor and did not go into a field for finance. I am solely talking about my experience and opinions. You are free to disagree with me but please be nice in the comments. This is just information. All I ask of you is to be respectful. if you want to, if you think I am not doing it myself but ultimately the advice and experience is solely for your benefit to choose what you would like to do. I hope this helps. Also nothing in this article is a personal attack on you or anything. It was never meant to be that way. Take what you want out of it. Again, this is just information. Without further ado, let's begin the article. I have a lot of experience using CDs myself. I have had them since 2016 and learned quite a bit myself. I made mistakes and made a lot of great calls as well.
What is a CD?: A Certificate of Deposit is an investment that you give a certain amount of money to lock away for the same rate listed on the bank’s website for a certain term which is generally at least 3 months and can go as high as 5 years. In order to not pay a penalty, you must keep the cash in there until the CD matures. You can therefore close the CD, renew it for the same or a different term, etc. Sometimes there is such a thing as an adjustable rate/term but it is not something you see as well. IRAs can also be put in a CD format but you must be very careful with reading the terms as sometimes they hide sneaky fees. There are sometimes things that offset it but don’t always count on it.
Pros: If the term and the CD rate is good, you have it for the whole time your CD is locked in that rate. This is good for putting a sense of restraint from spending all of your money and teaching you delayed gratification. You can get a decent return on investment but you do need to be patient in order to reap the whole benefits. You do not need to worry about fluctuations during the period of your CD. You can shop around for the best rate which is something I recommend. The investment is safe. They tend to be higher than the bank’s normal savings account interest with the general exception of high yield savings accounts. Your CDs are FDIC, which stands for Federal Deposit Investment Corporation, insured up to $250,000 in US currency. I cannot speak for other countries. Your investment is safe. In other words, even if the bank goes down, you will get the money that you put in.
Cons: While I did say this is a pro, your money is still locked up and must pay a penalty if you withdraw it early. There are other things that are better than a CD such as a high yield savings account which is often found in online banks. There are other investing options like stocks. CDs can’t keep up with inflation. You must pay taxes on the interest on your CD interest unless it is under $10 total as of the time that this was written.
Why are they important?: They are important for those people who want to be disciplined with their money and who want a consistent rate for a certain amount of time. If you are prone to be a big spender, it will teach you restraint and delayed gratification. It is also a great way to set aside money for important purchases to avoid spending money on other things.
Would I use them? And How would I use them?: Absolutely. I use them to manage my money and make sure that I can set aside the money necessary for each goal. As of the time of this written blog post, the rates are still relatively high and do not want to pass up on 5% CDs. There are others that are higher rates but I am not complaining about rates that are as high as 5% or even 4%. There were times where rates were less than 1% during the pandemic. When I first started having CDs of my own, the rates were roughly 2% and that is so small compared to what it is now.
Advice for people who want to have CDs: Here are my tips. First of all, shop for the best rates. Second tip, make sure you know what you are signing up for. Third tip, make sure you are smart about how long you go for the CD given the percent you can earn from a CD. Fourth tip, read the fine print. Fifth tip, Make sure that the bank is reputable. Sixth tip, make sure you read the minimums in order to create a CD. Seventh tip, The more you put into a CD, the more interest you accumulate over time. Eighth tip, once you sign the papers to create a CD, you can’t touch the CD without a penalty. Ninth tip, always do the math on your return on investment. Having a CD rate of 5.25 % for 9 months is good, but if you have a CD of 5% for a couple of years, then your return is a lot better than keeping it for that short term. Finally for your tenth tip, If you are tempted to spend your emergency fund, put it in a CD. Otherwise, if you do not care about putting your money in an online bank, put it in a high yield savings account.
How is this a hobby?: I like to learn about finance. I learned a lot through various ways from family to Youtube. I like researching this for fun and learning about budgeting, credit cards, certificate of deposits, stocks, etc.
Closing message: I hope the information on CDs helps you make an informed decision on what to do with your money. What you decide to do with your money is up to you. This is just information that you can use to help you. The next blog post is going to be about Fuecoco and the arts and crafts. Also check out my social media accounts below, please. Thank you.
Social media to follow:
Comments