Tips for Using and Investing with Certificate of Deposits (CDs)

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Published On:
November 22, 2023

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When it comes to managing your money, there are various investment options available, and one of the most popular and conservative choices is the Certificate of Deposit (CD). CDs are a low-risk, interest-bearing investment option offered by banks and credit unions, and they can be a valuable addition to your investment portfolio. Keep reading to learn what CDs are, their benefits, and gain some valuable tips for using and investing with CDs.

What is a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is a financial product that allows you to deposit a specific amount of money for a fixed period, ranging from a few months to several years. In return for locking in your funds for that time, the bank or credit union pays you interest at a predetermined rate. At the end of the CD's term, you receive your initial deposit (the principal) along with the accrued interest. CDs are considered one of the safest investment options because they are insured by, up to $250,000 per depositor, per insured bank or credit union through the NCUA or FDIC.

Benefits of Investing in CDs

Before we dive into tips for using and investing in CDs, let's take a moment to appreciate their advantages:

  • Safety: CDs are among the safest investments because they are backed by the NCUA and FDIC, which means your money is protected.
  • Predictable returns: The interest rate for a CD is fixed, ensuring that you know exactly how much you will earn at maturity. This predictability can be comforting in uncertain financial times. Use our CD calculator to determine how much interest you will earn. At Arbor our minimum deposit typically is $500 or $100 for your child under 12.
  • Low risk: CDs have minimal risk because your principal and interest rate are guaranteed, unlike the stock market, which can be highly volatile.
  • Variety of terms: CDs come in various terms, allowing you to choose a maturity date that aligns with your financial goals and timeline. Here at Arbor our lowest term is 6 months with specials sometimes at an even lower term.

Tips for effectively using and investing in Certificate of Deposits.

Diversify your investments:

While CDs offer safety and predictability, they may not provide the same level of returns as riskier investments like stocks or real estate. To maximize your portfolio's performance, consider diversifying your investments. Allocate a portion of your funds to CDs while also exploring other investment options that match your risk tolerance and financial goals. To learn more about investing speak to our wealth management specialist Cory.


Match CD terms with financial objectives:

Choose CD terms that align with your financial objectives. If you're saving for a short-term goal, like a vacation or emergency fund, opt for a short-term CD. For longer-term goals, such as retirement, consider longer-term CDs to potentially secure higher interest rates. Don’t forget to take advantage of any CD specials.

Shop around for the best rates:

Interest rates on CDs can vary among different financial institutions. To get the best return on your investment, compare CD rates from various banks and credit unions.

View Rates

Ladder your CDs:

CD laddering is a strategy that involves investing in multiple CDs with different maturities. This approach provides liquidity, as a portion of your funds becomes available for withdrawal at regular intervals. It also allows you to benefit from higher long-term CD rates while maintaining flexibility.

Avoid early withdrawal penalties:

When you invest in a CD, your money is typically locked in until the maturity date. Early withdrawal may result in penalties that can eat into your earnings. To avoid this, make sure you only invest money in a CD that you won't need before the CD matures.

Reinvest when CDs mature:

When your CD reaches its maturity date, you have the option to withdraw the funds or reinvest in another CD. If you don't need the money immediately, consider reinvesting it into a new CD to continue earning interest. This strategy can help your savings grow more over time.

Certificate of Deposits (CDs) are an excellent tool for low-risk, interest-bearing investments. They provide a safe and predictable way to grow your money, and with the right strategies, you can make the most of your investments. By following these tips, you can effectively use and invest in CDs to achieve your financial goals while keeping your money secure. To open a CD at Arbor financial stop into any branch today!

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