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Should I Put Money In Savings Or CD?

Savings Account vs CD

You’re sitting on some cash and you’re wondering whether to put it in a CD or savings account. Given the current rate environment, there are some advantages and disadvantages to each option.

Should I put my money in a certificates of deposit?

Before you decide on a savings or CD, you’re going to want to ask yourself if you’re going to need the cash in the near future. Depositing your money into a CD will lock up your money for some time. Most CDs can be purchased in fixed terms such as 3 months, 6 months, 1 year, etc. Your money would be locked up for that time frame and in exchange you would get an interest rate typically higher than the savings rate, and that is guaranteed by the FDIC.

Most banks or brokerages will charge a penalty if you withdraw or cash out the CD prior to the end of the term. This will impact any interest earned as the fee would likely be greater than any interest earned. You need to make sure that you’re not going to need the money prior to the end of the term. Currently the highest CD rates are the long term CDs – anywhere from 2-10 year terms. These long term CDs have the best rates but you won’t be able to touch your money for the term of the CD, and if rates go up you will not be able to take advantage.

Should I put my money in a savings account?

Putting your money to work in a savings account can also generate a solid interest payment every month while maintaining liquidity with your money. In most times, you’ll get a rate that’s generally lower than a CD but without having to tie up your money. This would likely benefit those that want to earn a great interest savings rate but want to make sure to have immediate access to their cash.

You’re going to have to be careful because some banks do charge monthly fees and have account balance minimums that will impact interest earned. In addition, you’ll have easy access to your money which makes it harder to save if you don’t have self control.

In today’s rate environment, it makes the most sense to put your money in a high yield online savings account such as Ally Savings or WT Direct. Both of these online savings accounts provide high rates – Ally has no minimum balance while WT Direct has a $10,000 minimum balance. By using an online savings account, you can earn a decent interest rate while waiting for rates to improve.

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