How to Use Certificates of Deposit (CDs) for Your Savings Goals
If you have money you won't need for a set period, a Certificate of Deposit (CD) can earn you a guaranteed return that's typically higher than a regular savings account—with zero risk to your principal.
How CDs Work
You deposit a fixed amount for a specific term (typically 3 months to 5 years). In exchange, the institution pays a guaranteed interest rate. When the term ends (the CD "matures"), you get your deposit back plus the interest earned.
Why Choose a CD?
- Guaranteed returns: The rate is locked in—no market risk.
- Higher rates than savings: Especially for longer terms.
- NCUA insured: Your money is protected up to $250,000 at credit unions.
- Discipline: Early withdrawal penalties discourage dipping into savings.
The CD Ladder Strategy
Instead of putting all your money in one long-term CD, spread it across multiple CDs with different maturity dates. For example:
- $2,000 in a 1-year CD
- $2,000 in a 2-year CD
- $2,000 in a 3-year CD
As each CD matures, you can reinvest at current rates or use the funds. This gives you regular access to portions of your money while still earning higher long-term rates.
When CDs Make Sense
- Saving for a specific goal with a known timeline (down payment, wedding, vacation)
- Parking an emergency fund you've already fully built
- When interest rates are high and you want to lock in the rate
- When you want guaranteed growth with zero risk
What to Watch Out For
Early withdrawal penalties can eat into your earnings, so only put money in a CD that you're confident you won't need before the term ends. Compare rates across institutions—credit unions frequently offer the best CD rates.
BrightStar Credit Union offers a variety of CD terms with competitive rates. Visit us or check online to see our current offerings.
