Skip to Main Content

Saving money wisely is an important part of planning for the future. Knowing that you and your loved ones are financially prepared for major life events will help you sleep easier at night. But how do you know if you're saving money the right way?

There are many ways to plan for the future beyond simply putting your money into a regular savings account. With a certificate of deposit (CD), the money you save will grow over a period of time. If you know you'll be spending a good chunk of cash on a milestone event several years down the road, consider putting your money into a CD.

What's a CD and how does it work?

A CD is a financial savings product that's offered by most credit unions and banks. It involves making one lump-sum deposit and leaving that money with the institution for a set amount of time. The deposit is referred to as your "principal" and the length of the CD is referred to as your "term." Over the course of the term, the principal will grow by earning interest. The interest rates for CDs are higher than they are for standard savings accounts. While some institutions offer CDs with varying rates, traditional CD interest rates won't change once you begin, so you'll be able to accurately predict how much your money will grow throughout the term.

In exchange for higher, fixed interest rates, you'll be required to keep your money with the institution untouched until the term of the CD is expired. On the last day of your term, also referred to as the "maturity date," you'll be able to withdraw your earnings. If you ever have to withdraw money from your CD prior to the maturity date, the institution will charge you a penalty.

Why should you open a CD?     

Let's say you have a large chunk of cash in your savings account, but you don't have a good use for it at the moment. Perhaps, you just proposed to your fiancé/ fiancée and plan on getting married in a year. Or, if you plan on buying a house in the next five years, you could use a CD to help with the down payment.  

The best thing about opening a CD is that they're very accessible (most banks offer them) and there's very little risk (your money will grow at a locked-in rate). This is a perfect option for you if you want to be financially prepared for a major life event.

Here are a few major life events to consider saving for with a CD:

  • Getting married
  • Buying a house
  • Having a baby
  • Switching jobs
  • Sending kids to college
  • Retirement

Opening a CD may be the answer you're looking for when trying to figure out the most efficient way to save.

Before opening your CD

Make a plan: What major life events should you be saving for? How much will you need? How much income are your projected to earn until then? Once you have a good amount of cash that can be set aside, you can start figuring out how to make that money grow. Then, make sure you shop around. As mentioned, almost every bank or credit union offers a CD product, in order to get the best rate, you'll want to compare several options before picking one. Also, keep a close eye on the federal funds rate. This may change multiple times a year, so if interest rates are particularly low, it may be worth holding off on opening your CD until they jump back up again.

Interested in learning more about CDs? We're here to help! Contact The Federal Savings Bank today.

This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.