A certificate of deposit (CD), known as a certificate at credit unions, is a safe way to invest money for a fixed period of time at a specified interest rate.
There’s a lot CDs have to offer (and not only for those with money to burn). Interest rates have been on the rise as of late, so there’s no time like now to consider this investment option. Here are a few misconceptions you may have heard about CD investments—and reasons why you might reconsider this “set it and forget it” way to earn.
Myth #1: They're only for people with a lot of money
You don’t need a six-figure salary to invest in a CD. Most credit unions and banks offer CDs starting with as little as $1,000 or even $500.
Myth #2: They'll tie up my money for too long
You can open a CD with a commitment as short as six months. (See SELCO's current rates.) Of course, if you won’t need your funds that soon, you’ll earn a higher interest rate with a longer term. Even in a worst-case scenario, if you need to withdraw the money before the maturity date, you can. You’ll typically give up a few months’ worth of accrued interest as a penalty, which will only impact your principal if you opened the CD very recently.
Myth #3: They're risky
Unlike the stock market, your certificate balance is insured by the FDIC (banks) or NCUA (credit unions) for up to $250,000. That’s about as safe as it gets.
Myth #4: They aren't profitable
Sure, a CD won’t give you the high returns of a game-changing stock purchase, but your earnings are guaranteed (no matter how the market fares). They can be a great way to earn interest while saving for a longer-term goal, like a wedding, major vacation, or down payment on a home.
Myth #5: I'd be better off keeping my money in savings
Only if you’re likely to need the money within six months. Otherwise, unless you’re earning an extraordinary return on a savings account (the average rate today hovers around .05%), you’ll earn significantly more interest with a CD. Plus, with a CD, you won’t be as tempted to spend what you’ve worked so hard to set aside.