Do I Need a CD (Certificate of Deposit)?

Like any savvy saver, you want to make the most of your money. Set up a savings account? Done and dusted. Establish stock market investments? They’re in the books. But now you’re wondering, “Do I need a CD?” Including a credit union certificate of deposit (CD) can be a smart addition to your money management strategy.

A traditional credit union CD, also known as a share certificate, is a type of savings product that offers a fixed interest rate on a lump sum of money for a specified period. Credit unions provide a variety of CD options, with varying terms, and CDs at credit unions often pay higher rates than banks. To learn more about how a CD can help you achieve your financial goals, use our Credit Union Locator Tool to find a credit union near you.

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Do I Need a CD?

If you’re looking to invest a lump sum of money, whether or not to put it into a credit union certificate of deposit depends on your personal situation and goals. CDs typically have higher interest rates than standard savings accounts, but if you make an early withdrawal, you’ll usually have to pay a fee. 

Among a CD’s benefits is that it offers a relatively high-interest rate without any of the risk or volatility associated with the stock and bond markets. The tradeoff is that CDs don’t have the same growth potential as stocks and, in most cases, you cannot access the money before the account matures. Overall, a CD is a good option if you're risk-averse and looking for a safe, long-term investment. 

CDs can also be an effective tool for achieving short-term goals, like saving for a vehicle or a once-in-a-lifetime trip. You can safely invest your money for a specific time — anywhere from one month to 10 years — knowing that it will earn interest and grow in value. Moreover, you're less likely to tap into your savings because most CDs come with a penalty for early withdrawals. This deterrent doesn't exist with regular savings or money market accounts.

However, the money is there if you need it if an unforeseen crisis or accident occurs.  Just be aware there will likely be an early withdrawal penalty (EWP). The EWP is typically a certain number of months’ interest, depending on the term, which is determined when you first open the CD.

How Does a CD Work?

Opening a CD is essentially the same as opening any regular financial account, although it does have several unique qualities. For example, while some financial institutions don't necessitate a starting balance to open a CD, others have minimum investment requirements ranging from $500 to $25,000. Therefore, shopping around to explore and compare available options is important, as different financial institutions have varying rates, terms, requirements, and promotions. 

With a traditional CD, however much you invest, you're contractually obligated to leave the money on deposit at the financial institution for a set period. In return, the financial institution pays you a predetermined interest rate and guarantees the repayment of the principal at the end of the term. 

CDs work similarly at any financial institution, whether it's a bank or credit union certificate of deposit. However, it's helpful to know that credit unions consistently offer higher interest rates than banks. Additionally, the length of time you agree to leave your deposit in the CD account also affects the interest rate — the longer the term, the higher the rate. 

With most CDs, once you lock in your interest rate, it cannot be changed, so your return will be consistent. But there are drawbacks. A CD with a fixed rate means that you can’t take advantage of higher-paying rates without opening a new CD account. 

A CD's "maturity date" refers to the day the term ends, and you can access your money without penalty. Once it reaches maturity, you can roll over the CD into a new CD, transfer the funds into another account, or withdraw the funds. Determining your maturity date and whether you want a short- or long-term CD depends on both your financial goals and market influences, like actions of the Federal Reserve Board

The Fed raises and lowers the interest rate depending on various economic conditions. If it's expected that the Fed will implement a rate hike, it's most beneficial to go with a short- or mid-term CD, so you won't be locked into a lesser rate when higher rates go into effect. At the same time, if rates are expected to decrease, it makes sense to get a long-term CD so you can lock in the current high rate for your desired length of time.

Different Types of CDs

Traditional CDs are a safe and conservative investment option. While they impose penalty fees for early withdrawals, they have a fixed interest rate and a consistent return. But if you're looking for more flexibility and control, other CD options are available. Some different types of CDs include:

Pros of CDs

CDs may not be suitable for everyone, but these qualities make them a promising option: 

Cons of CDs

While CDs offer plenty of benefits, there are also some drawbacks you should consider: 

Credit Union CDs

CDs are a great option if you want to make more money off your savings. And, because of their not-for-profit status, credit union CD rates typically can't be beaten. Credit unions also tend to have more flexibility regarding CD terms, such as early-withdrawal penalties and minimum deposit requirements. You can also expect excellent customer service, as credit unions are owned by their members.

Further Resources on CDs and Their Role as a Saving and Investment Tool 

For more information on credit union certificates of deposit and overall investment tips, check out these resources:

Open Your Credit Union CD Account Today 

If you’re looking for a safe and reliable investment product with a guaranteed return, a credit union CD can be a great option to help you achieve your financial goals. Use our guide to find a credit union near you, where you can learn more about CDs, including current credit union CD rates.

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Did you know? 

Credit unions generally offer CD interest rates higher than the national average due to their not-for-profit status. And while credit unions are community-based and owned by their members, banks are profit-driven and accountable to their shareholders, meaning they tend to offer lower interest rates on CDs and other investment products.

Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.