Locked In or Left Out? How to Pick the Perfect CD Term for You
Finding the "Just Right" for Your Savings
Let's talk about Certificates of Deposit, or CDs. You've probably heard of them—they're a fantastic, straightforward way to earn more on your savings. The deal is simple: You agree to park your money with us for a set amount of time (the "term"), and in return, we give you a guaranteed, fixed interest rate that's almost always higher than a standard savings account.
The only real puzzle is... which term? Six months? Eighteen months? Five years? Does it really matter?
How to Choose Your CD Term Like a Pro
Picking a term isn't about finding a secret magic number; it's about matching your money to your timeline. Before you lock in, ask yourself these three simple questions.
1. What is this money for? This is the most important question. Be honest. Is this money for a vacation you plan to take in 10 months? Then a 5-year CD is a terrible idea. Is this part of a down payment for a house you might buy in 3-5 years? A longer-term CD could be perfect. The golden rule: Don't lock up money you’ll definitely need before the term is up.
2. What are interest rates doing? Think of this as the financial weather report. If rates are high, it's smart to lock in a longer term (like 3 or 5 years) to enjoy that awesome rate for as long as possible. If rates are low but seem to be rising, you might stick with a shorter term (like 6 or 12 months). That way, when your CD matures, you can roll it into a new one at a (hopefully) higher rate.
3. Am I okay with "just in case" penalties? Life happens. If you absolutely must pull your money out of a CD early, there is an early withdrawal penalty (usually a set amount of interest). It's not the end of the world, but it's not ideal. This is why that first question—"What is the money for?"—is so critical.
Pro-Tip: Try a "CD Ladder." Can't decide? You don't have to put all your eggs in one basket. With a ladder, you split your money into multiple CDs with different terms. For example, you could put $5,000 into five different CDs:
$1,000 in a 1-Year CD
$1,000 in a 2-Year CD
$1,000 in a 3-Year CD
...and so on. This way, you have a CD maturing every single year, giving you flexible access to your cash and letting you take advantage of the higher rates that usually come with longer terms.
Your Goals, Your Timeline
Ultimately, there is no single "best" CD term; there's only the term that's best for you. It’s all about making your savings work on your schedule. And the best part? You don't have to figure it out alone.
We're right here at Common Trust FCU, and we're always happy to help our members find the perfect fit. Stop by, give us a call, or check out our current rates today!