6 Reasons Why a CD is Worth Considering in 2023

Tyler Britton
January 23, 2023

Saving money is an essential financial discipline that can help you reach your financial goals and prepare you for unplanned expenses. There are many different financial products that can be used to help you reach your savings goals, including investments, money market accounts, high-interest savings accounts, and certificates of deposit. Certificates of deposit – commonly referred to as CDs, are an option that many savers have been considering over the past few months – largely due to their financial safety and rising rates. With a CD, you deposit a set amount of money for a specified period of time and receive a locked-in interest rate for the entire term. Most financial institutions have many different CD terms to choose from, each with its own distinct rate.

Let’s take a closer look at why a CD is worth considering this year:
 

1.)   CD Rates Have Increased Significantly

Since late 2022, CD interest rates at many financial institutions have been steadily increasing as the Federal Reserve has rolled out several hikes to the Federal Funds Rate – the interest rate that banks are charged for overnight loans needed to meet reserve requirements. The Federal Funds Rate is commonly used as a pricing benchmark by banks and credit unions and influences the interest rates they offer on deposit products like CDs, money markets, and savings accounts.

Due to the Fed’s recent interest rate hikes, CDs have become much more attractive to consumers than they were a year ago. However, some savers have been reluctant to lock in a CD rate too early – as doing so could mean lost savings opportunity if interest rates continue to rise. While no one can say with certainty exactly what the Fed will do with interest rates this year, there are signs that inflation is settling, and as inflation gets under control, it will likely mean fewer interest rate increases. Because of this, many consumers believe that now may be a great time to lock in an attractive interest rate on a CD.
 

2.)   A CD Doesn’t Have to “Lock Up” All of Your Cash

If you are worried about losing out on better future CD rates, one option is to structure your deposits using a CD ladder. A CD ladder involves opening several different CDs with varying term lengths. For example, you might open a 6 Month CD, a 12 Month CD, and a 24 Month CD. The longer-term CD will typically provide you with a higher interest rate than the other two, while the shorter-term CDs will provide you with access to your deposits sooner, so that you can re-invest the funds if interest rates do rise.
 

3.)   Deposit Additional Funds Throughout Your Term with an Add-On CD

Traditionally, you need to set aside a lump sum to invest in a CD and once your account is opened you can no longer add funds to it. However some banks, like Bank5 Connect, offer add-on CDs that allow you to deposit additional funds into the account throughout the CD’s term. The ability to add money throughout your term allows you to grow your initial deposit and maximize your interest earnings during the life of the CD.
 

4.)   CDs are a Safe Investment Option with Guaranteed Returns

Unlike stocks, bonds, and mutual funds, which do not have guaranteed returns, CDs have fixed interest rates so you know exactly what your investment will be worth in the future. Even if CD rates fall after you open your account, your interest rate will remain the same throughout the CD’s term. Also, while many investment vehicles could result in the loss of your initial investment, there is no risk of losing your initial deposit with a CD.

Furthermore, while non-deposit investment products are not insured by the FDIC, certificates of deposit are. That means, even if the bank you’ve opened your CD with fails, your money is protected – generally up to $250,000 per account, per accountholder. If you plan on depositing more than $250,000, there are even some banks that offer deposit insurance above FDIC limits. Bank5 Connect for example, offers Depositors Insurance  Fund protection to all of its deposit customers free of charge. That means 100% coverage, even if your balance exceeds FDIC limits.
 

5.)   CDs Offer Higher Returns than Many Traditional Savings Products

While CDs are just as safe as a traditional savings or money market account, they generally pay higher returns because you’re agreeing to not withdraw your deposit until the CD’s term is over. Of course, it’s possible to withdraw your funds from a CD early but doing so will likely result in early-withdrawal penalties.
 

6.)   Easy Liquidity at the End of Term

With traditional investments like stocks and bonds, it’s not always easy to determine the liquidity of your funds. Depending on the type of investment, it could take days or even weeks to convert your assets into cash. With a CD on the other hand, once its term length is over (also known as when the CD has matured) you'll be able to transfer the funds to another account or roll them over into a new CD term. With a CD, you don't have to transfer ownership or sell shares in order to receive your money.  

It’s always a good idea to consult with a tax professional or investment advisor before making any major changes to your investment strategy, but for many consumers, CDs can be a smart, reliable way to save. Bank5 Connect offers a wide selection of high-yield CDs, with terms ranging from six months to 36 months. Bank5 Connect CDs only require a minimum investment of $500, and our 24-month Investment CD allows you to add funds throughout the term. If you’re interested in opening a Bank5 Connect CD, visit our website or contact us for more information today! 

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