Where to invest? High-yield savings accounts VS Certificates of deposit

U.S Investment Advice List of United States Investment Advice, Security Brokers And Dealers

Where to invest? High-yield savings accounts VS Certificates of deposit

Where to invest? High-yield savings accounts VS Certificates of deposit

High-yield Savings Accounts

Just like a savings account that earns pennies at your physical bank, high-yield online savings accounts are accessible vehicles for your money. Because there are fewer overhead costs, you can typically earn much higher interest rates at online banks. Plus, you can usually access the money by quickly transferring it to your primary bank or perhaps even through an ATM.

A savings account is a good tool for those who need to have money available in the near future.

Risk: The banks that offer these accounts are FDIC-insured, so you don't have to worry about losing your deposit. Although high interest savings accounts are considered safe investments just like CDs, you do run the risk of earning less when reinvested due to inflation.

Liquidity: Savings accounts are as liquid as your money can be. You can add or remove money at any time, although your bank can legally limit you to only six withdrawals per statement period, if it so decides.

Certificates of Deposit

Certificates of deposit, or CDs, are issued by banks and typically offer higher interest rates than savings accounts.

These federally insured time deposits have specific maturity dates that can range from a few weeks to several years. Because they are "time deposits," you cannot withdraw the money during a certain period without penalty.

With a CD, the financial institution pays you interest at regular intervals. When the CD matures, you get back the original principal amount plus any accrued interest. It pays to look online for the best interest rate.

Because of their safety and higher payouts, CDs can be a good choice for retirees who don't need immediate income and can lock up their money for a while. But there are many types of CDs to meet your needs, and so you can still take advantage of the higher interest rates on CDs.

Risk: CDs are considered safe investments. But they do carry reinvestment risk - the risk that when interest rates fall, investors earn less when they reinvest the principal and interest in new CDs with lower interest rates, as we saw in 2020. The opposite risk is that interest rates rise and investors cannot profit because they have already tied up their money in a CD.

Consider stacking CDs - investing money in CDs with different maturities - so that not all your money is tied up in one instrument for a long time. It is important to note that inflation and taxes can significantly erode the purchasing power of your investment.

Liquidity: CDs are not as liquid as savings accounts or money market accounts, because you are tying up your money until the CD reaches maturity - often months or years. It is possible to dispose of your money earlier, but you often pay a penalty to do so.

Was this article helpful? Yes -0 No -020 Posted by: 👨 Joseph N. Lewis
×
Wait 20 seconds...!!!