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Is a CD The Right Savings Vehicle For You?

Saving for your future or your family’s financial security is essential, but it can be challenging to find the right savings approach. While saving in a traditional checking account is common, have you considered a Certificate of Deposit (CD) to help you reach your savings goals?

In a recent survey on personal finance concerns, many adults expressed worries about retiring without sufficient savings and lacking emergency funds.

Let’s explore the benefits and considerations of using a CD as a savings vehicle.

Certificates of deposit typically carry higher interest rates and can generate higher rates of return. However, you’ll only build up substantial savings as long as you don’t withdraw money early because doing so will lead to penalties.

What Is A CD?

You can choose a term that suits your savings need. Common time frames are three or six months, or one or two years. Some CDs have terms as long as 5 or 10 years. The longer term accounts typically offer higher yields.

Keep in mind the rates of a CD can change frequently and different terms can require different minimum balances. In order to build a strong savings, look around for the best rates and keep in mind that you can open multiple term accounts.

Because these time-based funds aren’t as easily accessible as a savings account, they may help you stick to your savings goal.

When the term of a CD expires, the funds and interest earned will typically renew for the same term or the timeframe identified in your account agreement. It’s important to move these funds into a different account type, if that’s your intent, before your CD renewal date.

Make The Most Of Your Savings

Before opening a term account, set a savings goal for yourself. Perhaps you’re looking to have enough for a down payment on a house, or you’re planning an overseas vacation next summer. You may be somewhat wary of tying your money up for a long period of time with the potential for rates to rise. Consider “laddering” your CDs.

The Advantage of CD Laddering

If you have concerns about tying up your funds for a long period or anticipating rising interest rates, CD laddering is a strategy worth exploring. Here’s how it works:

  1. Divide your savings amount, for example, $10,000, into equal portions.
  2. Open CDs with different terms, such as one, two, three, four, and five years.
  3. Allocate the divided amounts into each CD, for example, $2,000 in each.
  4. As each CD matures, reinvest the funds into a new five-year CD, benefiting from potentially higher interest rates.
  5. By laddering your CDs, you can consistently invest in longer-term certificates, achieve competitive interest rates, and have one certificate mature each year.


Customize your CD ladder based on your specific needs, considering the amount you can invest and the desired investment period. If you require regular income from your investments, explore other options that align better with your goals.

With approximately 62 percent of Americans not having enough in savings, a CD represents an excellent way to start setting aside money for the future and benefit from the higher yield interest rates. Rest assured that all CD investments up to $250,000 are backed by FDIC.

In conclusion, a CD can be an effective savings vehicle to help you achieve your financial goals. Consider the benefits of higher interest rates, the flexibility of CD terms, and the strategy of CD laddering to maximize your savings potential.

Start building a strong financial foundation today with a CD from Bank Midwest and work towards a more secure future.

Post updated. This article was originally published February 2020.

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