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If you have $5,000 in savings outside of what you need for your emergency fund, you may be wondering where you can save that money and earn a meaningful return. In this case, a 3-year-old certificate of deposit (CD) may be what you are looking for.
CDs are savings vehicles that typically pay competitive interest rates when compared to savings accounts and other options. AND returns on CDs are fixedso no matter what happens to interest rates in the future, you will continue to earn the same rate for everyone account term. But the trade-off is that you’ll have to leave your money in the CD for the full term to access those competitive fixed returns. Otherwise, you may have to pay an early withdrawal penalty that will affect your returns.
But there are plenty of good options to consider in today’s high-rate environment, so is it really worth putting $5,000 into a 3-year CD right now? Here’s what the experts say about doing it.
Compare some of the best CD prices on the market right now.
Should you put $5,000 into a 3-year CD? Experts estimate
Right now, First Internet Bank of Indiana, Popular Direct and Quontic Bank offer 3-year CDs with prime interest rates of 4.61%, 4.50% and 4.40% APY, respectively. And, there are many other 3-year CD options with rates that rival these CD accounts.
But today’s high rates aren’t the only reason experts say you should put $5,000 into a 3-year CD now. Other reasons include:
To close today’s high rates
“One of the direct benefits of locking into a 3-year fixed-rate CD would be if the rates went down over the three years, then you’d continue to enjoy a higher yield,” says John Jones, a representative of investment advisor at Heritage Financial. , a financial planning firm.
This is important to consider given the current state of the economy. like inflation continues to cool, the Federal Reserve is more likely to lower its federal funds rate, which could lead to lower CD returns in the future. So, from opening a 3-year CD now, you are able to lock in today’s high rates.
“If you’re a CD buyer or investor, this is at or very close to the time to close out the longer options as we’re going to start seeing rate regression very quickly,” says Matt Willer, managing director of capital markets in Phoenix. Capital Markets, an investment management firm.
When you open a 3-year CD, Willer says, you can earn “more than if you had waited ’til future dates during the rate cut cycle. So you’re keeping the elevated rate because the alternative will be too lower.”
Lock it in at a great rate on a CD today.
To keep your money safe
“CDs are among the safest places to put capital,” says Willer. “So for the risk-averse, the conservative, it’s a disciplined and predictable way to grow capital with negligible risk exposure.”
So what does a 3-year-old do? CD a safe place to store your $5,000? Here are some ways CDs can provide security:
- Hedging against rate volatility: CDs offer a fixed, predictable rate of return. This rate is locked in, so you won’t have to worry about rate volatility for three years when you open a 3-year CD.
- FDIC or NCUA insurance: Most CD accounts offer up to $250,000 of FDIC or NCUA insurance per depositor, per account. This means that your money is safe even if the financial institution goes out of business or faces other major liquidity problems.
- Protection against early withdrawals: If you touch your CD early, you may have to pay an early withdrawal penalty, making it less likely that you will. So CDs can help keep your money safe from unnecessary withdrawals, as you’ll need to carefully consider the pros and cons of using them before your account matures.
Simplified planning
After all, there are no surprises with a CD. Everything from the account term to the potential returns will be clear from the moment you open it. So opening a 3-year CD now can help ensure that your money meets the financial goals you’ve set three years from now.
“Finally, there’s no ambiguity, you know what you have, you know what you’re getting, and you know how long your commitment is, which simplifies planning,” says Willer.
Use a CD to help you reach your financial goals today.
After all
If you have $5,000 and aren’t sure where to keep it, you might want to consider opening a 3-year CD. Experts say this can keep today’s high interest rates at bay while keeping your money safe. And, since account terms are clear from the start and returns are fixed, these types of accounts can be a smart tool to help you reach your financial goals. Compare today’s top CDs now.