{"id":13992,"date":"2023-12-21T09:57:19","date_gmt":"2023-12-21T16:57:19","guid":{"rendered":"https:\/\/www.iccu.com\/?p=13992"},"modified":"2025-03-18T10:14:10","modified_gmt":"2025-03-18T16:14:10","slug":"certificates-of-deposit-what-they-are-and-why-they-matter","status":"publish","type":"post","link":"https:\/\/www.iccu.com\/blog\/financial-education\/certificates-of-deposit-what-they-are-and-why-they-matter\/","title":{"rendered":"Certificates of Deposit: What They Are and Why They Matter"},"content":{"rendered":"\n

Everyone knows that saving money is important, but not everyone knows how<\/em> to save money. Budgeting isn\u2019t all about tracking expenses in an Excel sheet (thankfully); an optimized budgeting strategy includes low-risk savings options \u2014 in other words, getting your money to work for you.<\/p>\n\n\n\n

If you\u2019ve heard the term certificate of deposit (CD) get thrown around and have no clue what that means, you\u2019re not alone. In fact, a third of Americans<\/a> have no idea what a CD is. Don\u2019t limit your savings potential because you lack information. Instead, take a glance at the info below to see if a CD is the right money move for you.<\/p>\n\n\n\n

What is a CD?<\/h2>\n\n\n\n

A CD is a time-based savings account, where you agree to deposit a specific amount of money and keep it there for a fixed period of time, ranging from a few months to several years. In return, your financial institution pays you interest at a fixed rate throughout that time period. At ICCU, for example, we offer CDs ranging anywhere from 6 to 60 months. To make this model work effectively, early withdrawals are subject to additional fees and penalties.<\/p>\n\n\n\n

Now in simple terms: When you temporarily lock away part of your savings with a CD, you earn interest back until the CD term ends. If you withdraw money early, you\u2019ll likely face a penalty.<\/p>\n\n\n\n

CDs are considered low risk because of insurance and fixed rates. If you bank at an insured financial institution like ICCU, your deposit is insured up to $250,000 by the NCUA<\/a> (at credit unions) or the FDIC (at banks). The fixed interest rate and term make CDs a stable option for people who want to save money with a predictable return on investment.<\/strong><\/p>\n\n\n\n

CD Terms to Know<\/h2>\n\n\n\n

Maturity Date: <\/strong>The date the CD\u2019s term is expected to end. You choose to renew or close your CD at maturity, and this decision can be made when you first open your account or when the maturity date arrives.<\/p>\n\n\n\n

Grace Period: <\/strong>A short period after your CD matures. During this time, you can add to the principal, move your funds to other ICCU accounts, or close the CD entirely, all without penalty.<\/p>\n\n\n\n

Penalty: <\/strong>A loss of interest for a specified number of days. The penalty for each CD may differ depending on factors like term, rate, and type.<\/p>\n\n\n\n

Annual Percentage Yield (APY): <\/strong>The rate at which you can expect to earn interest back on your savings, assuming you don\u2019t withdraw interest or accrue penalties.<\/p>\n\n\n\n

CD Laddering:<\/strong> A savings strategy with multiple CDs. Savers open several CDs with gradually increasing maturity periods (i.e. one year, two years, three years, etc.) to take advantage of higher rates and better cash flow.<\/p>\n\n\n\n

Automatically Renewable CD: <\/strong>A CD that, after completing its fixed term, immediately renews at the current standard rate.<\/p>\n\n\n\n

Non-Automatically Renewable CD: <\/strong>The opposite of an automatically renewable CD. This type of CD immediately closes once it matures.<\/p>\n\n\n\n

IRA CD: <\/strong>An Individual Retirement Account held in a fixed-rate CD.<\/p>\n\n\n\n

Are CDs the best way to save money?<\/h2>\n\n\n\n

We\u2019ve said it before and we\u2019ll say it again: There is no single \u2018best\u2019 savings account; there are only accounts that currently best fit your goals. It\u2019s a subtle but critical difference \u2014 what\u2019s right for you may not be right for another member.<\/p>\n\n\n\n

So instead of giving you a simple yay or nay, let\u2019s walk through a few key factors to consider when choosing a savings account:<\/p>\n\n\n\n