High Yield CD: What Are Your Options?

One of the best long term/low risk investment tools out there is a certificate of deposit, more commonly known as a CD. A CD typically has a higher interest rate than a standard savings account, therefore, the annual yields are higher. Typically, a CD has a guaranteed rate associated with it and has a fixed-term length. Terms can last anywhere from a few months to a few years. Putting your money into a high yield CD can help you achieve financial goals, such as saving enough money to buy a new car, by gradually receiving interest over time. A high yield CD will have a great interest rate and can be used as a mechanism to save a substantial amount of money.

What Exactly is a High Yield CD?

CDs come in many types, one of which is high yield. Just like a traditional CD, a high yield has a certain amount of money set aside for a specific length of time while drawing interest and growing. A high yield CD, however, tends to have a much higher annual percentage yield (APY). Rates will fluctuate based on which institution you invest your money in as well as minimum deposits. A high yield CD normally requires a larger deposit than a traditional and has a longer term period. Typically, the higher the deposit amount, the higher the APY.

Compared to stocks, investing in CDs are relatively short term. If you are looking to make a large investment in a few years or months, putting your money into a CD in that same time span is a good idea. The interest drawn will allow the amount deposited to grow, letting you have a larger amount of money to put into the other investment. For instance, if you are planning on buying a home in a year, putting the money you have for a down payment into a high yield CD to let it grow for the next year will let you have an even bigger down payment when you go to buy the house. Since the CD has a term, you will not be able to withdraw from the account until that time is over. The down payment you put away will be in a safe place that will secure your money.

Why Invest in a CD?

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CDs are a great way to top your investment portfolio since they have a secure yield amount. CDs are considered a very safe way to invest your money. The stable way CDs earn value is the perfect way to make sure that your portfolio is well rounded. Though they are not very liquid during their term, CDs have more flexible capabilities than other investments.

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With a CD, you also do not run the risk of making a bad investment. If you chose to invest in the stock market, you run the risk of your stocks losing value and end up losing money rather than earning it. Choosing to invest in one bad stock could break your bank account and make you go underwater. By choosing to put your money in a CD, you know with certainty that you are making a positive decision. The CD is guaranteed to grow over time unlike other investment markets, such as the stock market.

The Benefits of High Yield CDs

The largest advantage to choosing a high yield CD is the better interest rate that comes with it. The rate still may not be incredibly huge, but it is larger than a traditional CD or savings account. When looking for a place to invest in a high yield CD, make sure it is backed by the FDIC or NCUA. Though it is unlikely, if something were to happen to your CD or the institution was to close, these two establishments will insure the value of your investment up to $250,000. Having your money insured this way makes investing in a CD a protected means of investing your hard earned money. Other markets of investment do not offer this sort of security for you money.

Since CDs have a specific APY, you can easily predict how much your investment will grow. The return you make on the account is easy to calculate and you know exactly what you will make in the end. Picking your term rate to fit specific planned financial milestones, such as saving to buy a new car or sending your child to college, will let the value grow the whole time until you are ready for that event to happen. Letting your account mature for a longer time brings a higher yield, so opening them many years in advance and planning long term will benefit you greatly.

What do I Need to do to Open a High Yield CD?

The most important feature about a CD is the term length. You will not be able to touch the funds in that account until the term is over. If you choose to take funds out of the account before that time is up, you are subject to very high penalty fees. Making sure that you are in a financial place where you can put away a large sum of money is highly necessary. If you think you will need the money soon, it is not a good idea to put it away in a CD.

Before putting money into a CD, it is a good idea to build an emergency fund. Putting away a few hundred, if not even a few thousand dollars for a rainy day prior to putting money in a CD will insure that you have the funds in case of a financial emergency.

You should also check interest rates at multiple places before investing. Each institution will have different rates, so rate shopping to find the highest one will be to your benefit. Check the bank’s rollover provisions and make sure that you know if the bank will automatically rollover your matured CD into a new one with the same term length. Finding out when a bank pays the interest is also important. Some banks will pay out monthly, others semi-annually, others annually, others when your CD reaches maturity. Knowing when your interest will be added is essential before opening an account.

Putting your Money in a Safe Place

CDs are an incredibly secure place to place your money. They are typically insured by the FDIC or the NCUA. They have high yield rates making your investment grow a significant amount over time. You get to choose your term, so you can take the money out when you are ready for it. Since rates are set, they are a low-risk investment and will maximize earnings with no fear. Choosing to put your money into a high yield CD account is a great investment possibility that lets you predict exactly how much your investment will grow.

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