If you’re thinking about investing part of your money in a CD, you presumably already know that you’ll have to keep the money there for a predetermined amount of time, which might be anything from one month to five years or even more.
There is no easy solution. In general, the bank or credit union is ready to offer you more interest the longer you agree to keep your CD open since it can depend on utilizing your money to conduct business for longer.
That is true, but only to a certain extent. The annual percentage yields, or APYs, of CDs also represent the expectations of the market for interest rates. Therefore, the annual percentage yields (APYs) for CDs with periods longer than a year may not be greater than those for CDs with shorter terms if rates are anticipated to climb in the short term but decline after a year.
So, if all you want is the highest APY, you now know the solution. However, when selecting a CD, one should take other factors into account as well. Additionally, consider your financial needs, how certain you are of that schedule, and potential future economic trends.
When will you require the cash? Your ability to select a term for your CD is likely to increase as your timetable becomes more well defined. For instance, a five-year CD can help you save more than keeping your money in a savings account if you’re preparing for a five-year home purchase.
A one-year CD would work if you’re organizing a trip for the upcoming summer. Make sure you have enough cash on hand to purchase your daughter the graduation gift she requested in eighth grade. Ahoy, four-year CD!
In other words, it will be simpler to choose a term the more certain you are about how long you have to save.