One of the important things in managing money is finding a way to balance between the chances of gaining money and the chances of losing it. You want to make smart choices with your money that let you earn more, but at the same time, you don't want to take big risks and lose it all.
Though it can be tough to find the right balance, there's a safe option available: certificates of deposit (CDs). When you put your money into a CD at a bank, you agree to leave it there for a set period of time. In return, the bank promises to pay you a certain interest rate during that time. Right now is a particularly good time to consider getting a CD because the interest rates are high.
Why you should put $15,000 into a CD right away
There are a number of reasons why using a CD may be a smart part of your savings plan, including:
Rates are high right now
The main thing to remember about using a CD for saving money is to aim for the highest interest rate you can get. If you settle for a lower rate, you're missing out on potential earnings.
Right now, though, CD rates are generally high. Here are some examples of the interest rates you might find for different CD terms:
- 6-month CD: 5.55%
- 1-year CD: 5.67%
- 3-year CD: 4.75%
- 5-year CD: 4.75%
It's worth noting that online banks often offer some of the best rates. Because they don't have the expenses of physical branches, they can offer higher rates compared to traditional banks.
Opening a CD locks in your rate
When you start a CD, you're promised to earn interest at the rate they advertise for the entire time you have the CD. Even if the rates for new CDs drop later, you'll keep earning the rate you locked in when you opened your account.
For example, let's say you start a 5-year CD with a 4.50% interest rate. By the third year, the bank might only offer 2.75% for new 5-year CDs. But that won't affect you; you'll still get the 4.50% rate for the rest of your CD's term. Other accounts, like high-yield savings, might change rates over time, but CDs keep their rates steady.
Earnings are predictable
When you start a CD, you can figure out how much interest you'll earn during the term. Here's an example of the interest you could earn for each CD term listed above with a $15,000 deposit:
- 6-month CD at 5.55%: You'd earn $410.63 in interest, making the total value $15,410.63.
- 1-year CD at 5.67%: You'd earn $850.50 in interest, making the total value $15,850.50.
- 3-year CD at 4.75%: You'd earn $2,240.64 in interest, making the total value $17,240.64.
- 5-year CD at 4.75%: You'd earn $3,917.40 in interest, making the total value $18,917.40.
In summary, a certificate of deposit gives you steady and safe returns. Investing $15,000 in a CD could lead to substantial gains, regardless of the CD's length. However, make sure you won't need that money while the CD is active because withdrawing early usually incurs hefty penalties.
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My age 86.shoud I invest in a $15,000 CD, MMa in fair health?
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