CD stands for “Certificate of Deposit”, meaning you deposit a sum of money into a bank that must remain in the bank for a fixed term, in order for you to receive a certain percentage of interest on your money. Anyone who has more than $1k just hanging out in their bank account should consider opening up a CD to get a higher interest rate.
…Which is why I looked into it. Our interest savings account is on 0.01% APY whereas your average no-penalty CD is offering 1.00% APY – that’s 100x higher than what I’m getting with my bank right now. (Note: “APY” just means the amount of interest you’ll earn on your money over period of 1yr, compounding annually. It stands for “Annual Percentage Yield”.)
Typically if you withdraw the money early, you will be charged penalties of varying severity depending on the bank. I looked into current CD’s being offered at the highest rates of interest, that will allow you to close it down and take out your money (and interest) after just 7 days, with zero penalties.
Now there are certainly longer-term CDs that offer higher APY’s, but you never know when you’re going to need your money back, and right now the interest rates are very low due to economic instability from COVID, so I do not recommend getting stuck in a long-term CD. This is true especially if you have a larger sum of money to invest, and if you don’t have that much to invest, the extra 0.1-0.3% APY won’t make much of a difference anyway.
But why should you trust me, a random person on the internet? You don’t have to, but I’ve spent hours researching this because I am not super well-versed in all of this investment/financial jargon malarky, and I’ve decided to summarise my key findings in lay-mans terms here to save you time from doing it yourself. I do also have a Business Studies degree from one of the top UK universities, if that helps.View Full Post