What is a Certificate of Deposit? Growing Your Savings With CDs

  • Financial Advice
  • November 02, 2022
  • FCU Team

With an uncertain economic future and market volatility, you may be looking for ways to grow your existing savings beyond having a savings account. Current market conditions have led to rate increases, and certificates of deposit, or CDs, have also been affected. Learn about this savings option and how it could benefit you! 

CDs and How They Work

CDs are low risk accounts. They typically offer higher rates than you would find in a regular savings account, and they come in a variety options. Another difference between a savings account and a CD is that money deposited into a CD has to stay there for a set period. While you can technically withdraw your money at any time, there are penalties for doing so.

Understanding a CD

Here are three of the most important things to look at when considering a CD:

  • The APY (Annual Percentage Yield), otherwise known as the interest rate
  • The term, which is how long you’ll need to have your money deposited
  • The minimum deposit to open the account

As an example, a financial institution might be offering a 9-month CD at an APY of 1.00% and a minimum balance to open of $5,000.

There are also a variety of CD types, though the most common are traditional CDs and Jumbo CDs. Jumbo CDs have higher deposit minimums to open the account. A few other CD types are liquid and brokered CDs, though Florida Credit Union does not offer those at this time. To learn more about CDs, including IRA CDs and more, check out our page.

Other Benefits of CDs

Other than higher interest rates than regular savings accounts, CDs offer other benefits as well that make them eye-catching options for growing savings.

Low Risk

CDs are lower risk investments when compared to investing in the stock market or things like property. One area where there is some risk to consider is inflation, which if too strong can erase your interest gain. Something else you should consider is the fixed term. If you deposit $10,000 for 24 months in a CD, you cannot withdraw that money for the next two years without incurring a penalty.

Predictable Results

Because your term and interest rate are usually fixed, you can predict the amount of interest a CD account will make you. Using a current CD offer from Florida Credit Union as an example (subject to change), a 26-month CD with an APY of 2.65% and a deposit of $5,000 will net you about $291.53 of interest, much more than it would earn if just stuck in a normal savings account for the same period of time. With that in mind, you can look at the CDs offered by a financial institution, see how much money you’re willing to devote to a CD, and start to calculate how much money you stand to earn with each option.

CDs with Florida Credit Union

Florida Credit Union CD rates have been rising, and we invite you to check out our deposit rates here. If you’d like to learn a bit more about CDs, we also recommend checking our EverFi, our financial education partner, which has a module on CDs.