5 Mistakes People Make When Opening a CD
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Don't let these CD mistakes trip you up! Learn the common pitfalls to avoid so you can maximize your savings.
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A Certificate of Deposit is a great choice if you have a chunk of money to save and want guaranteed returns. And CD rates are high right now, so it's a great time to be saving.
But, before you jump in, let's talk about some common mistakes people make. Avoid them so you make the most of your money.
Mistake #1: Not Comparing Rates
Just like shopping for a TV, you'd want to shop for the best interest rates. Different banks offer different rates for CDs. Make sure to look around and compare, so you can get the highest rates to earn bigger returns.
It might be easy to open a CD with your current bank. But many traditional banks don't have the best rates. Instead, smaller banks and credit unions often give much higher returns.
- Here are some of the highest CD rates for April 2024
- Mission Valley Bank CD Rates:
Up to 3.90% APY - Quontic:
CD Rates - Up to 3.75% APY - CIT Bank No Penalty CD:
3.75% APY - Sallie Mae Bank:
10-Month High-Yield CD - 3.50% APY - Western Alliance Bank:
9-Month High-Yield CD - 3.40% APY
- Mission Valley Bank CD Rates:
Mistake #2: Withdrawing Your Money Too Early
A CD ties up your money for a fixed term. But what if you suddenly need the money for urgent car repairs or a medical emergency?
You could withdraw your funds early, but it will cost you a fee, called an early withdrawal penalty. It's usually a few months' worth of interest. Sometimes, it can even dip into the principal if you withdraw early enough.
For example, if the penalty is 6 months' worth of interest, and you withdraw after 4 months, you'd actually lose some money.
To avoid this, make sure you don't need this money before locking it in a CD. If there's any chance at all you might need it, look for a special kind of CD called a "no-penalty CD." This CD is more flexible and lets you withdraw early without a fee.
- Mission Valley Bank:
3-Month No-Penalty CD - 3.88% APY - CIT Bank No Penalty CD:
3.75% APY - Sallie Mae Bank:
14-Month No Penalty CD - 3.00% APY
Mistake #3: Picking the Wrong CD Term
CDs can go from just 1 month all the way to 10 years. Remember that usually, your money is locked up in a CD. So if you have a 2-year CD, you have to wait 2 years before you can access that money again.
Longer terms might have higher APYs. But if you pick a term that's too long, you might need your money before the term is up. On the other hand, if your term is too short, it might mature too early and you'll lose out on potential earnings.
It's best to pick a term that aligns with your goals. For example, if you're planning to buy a house in a year or so, pick a CD around 1 year. This way, you keep that money safe and it can earn some steady returns.
| Term | Bank and Yield Rate |
|---|---|
| 3 Month | Western Alliance Bank: |
| 6 Month | Quontic: |
| 1 Year | Western Alliance Bank: |
| 2 Year | Quontic: |
| 3 Year | Quontic: |
| 5 Year | Quontic: |
Mistake #4: Not Reinvesting the Interest
Usually in a CD, you'll have the choice to either withdraw the interest or keep it in your CD. You might be tempted to withdraw interest so you get some extra cash in your pocket, but that's not a good idea.
If you don't reinvest your interest, you miss out on compound interest. That's where you earn interest on your interest, making your money grow faster. Always reinvest your interest to boost your savings without extra effort!
Mistake #5: Forgetting About the Renewal Date
When your CD's time is up, it'll typically automatically renew for the same term at the current rate. So if you opened a 1 year CD, it'll renew again into a 1 year CD.
And if rates fell, the current rate can be worse, and you'll be stuck with the CD.
To avoid this, set a reminder before your CD renews. This way, you can decide if you want to renew it, change it, or take your money.
So Are CDs Worth It?
Yes, CDs are a very safe investment option to park your money and grow some guaranteed interest. As long as the bank is FDIC-insured (or NCUA insured if it's a credit union), your funds are protected up to $250,000.
If you worry about interest rates falling, a CD can give you peace of mind since your rate is fixed. You know exactly how much you will earn. Just make sure you won't need the money for a specific amount of time.
If you might need your money, you can go for a no-penalty CD, as there's no risk if you need to withdraw early.
If you really need your funds on standby, a high-yield savings account is probably better for you. Currently, many savings accounts are offering APYs just as high as CDs.
- CIT Bank Platinum Savings:
4.10% APY Boost - UFB Portfolio Savings:
Earn up to 3.26% APY - Western Alliance Bank:
High-Yield Savings Premier - 3.80% APY - Mission Valley Bank:
High Yield Savings Account - 3.86% APY - Axos ONE:
Earn up to 4.21% APY - Quontic:
High Yield Savings - 3.50% APY - Live Oak Bank:
Personal Savings - Earn 3.80% APY - Valley National Bank:
High-Yield Savings Account - 3.79% APY
Bottom Line
CDs are great tools for safe, steady savings. Just remember these tips to avoid common slip-ups, and you'll be on your way to smarter savings. Compare your options, consider your financial needs, and let your money do the hard work for you.
High-Yield CD Rates - Up to 3.40% APY
- No fees
- $1 minimum deposit
- FDIC insured
| Term | CD Rates |
|---|---|
| 2 Month | 3.00% APY |
| 3 Month | 3.00% APY |
| 4 Month | 3.00% APY |
| 5 Month | 3.00% APY |
| 6 Month | 3.00% APY |
| 9 Month | 3.40% APY |
| 12 Month | 3.00% APY |
CIT Bank No Penalty CD - 3.75% APY
- Option to withdraw full balance and interest after 7 days of CD funding date
- $1,000 minimum to open an account
- 11 months
- No monthly maintenance fee
- Member FDIC
CD Rates - Up to 3.75% APY
- $500 minimum opening deposit
- FDIC insured
| Term | CD Rates |
|---|---|
| 6 Month | 3.75% APY |
| 12 Month | 3.00% APY |
| 24 Month | 3.35% APY |
| 36 Month | 3.25% APY |
| 60 Month | 3.00% APY |
High Yield CDs
- FDIC or NCUA insured
- No fees
- $1 minimum deposit
- 24/7 online access to funds
1-Month High-Yield CD - 3.90% APY
- $1 minimum deposit
- No fees
- 24/7 online access to funds
- FDIC insured
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