3 critical mistakes to avoid when opening a CD

3 critical mistakes to avoid when opening a CD ?>

People work hard to put aside money for emergencies. This money must remain safe and not be used for daily expenses or unnecessary spending. That said, not everyone wants to keep their savings or the extra money they have managed to put aside in an easily accessible account. An alternative is to open a Certificate of Deposit account. While doing so, one should make sure to avoid some common errors.

Choosing a longer term
CDs have different lengths. People looking to invest can choose from a whole range of six-month, twelve-month, two-year, or even five-year CDs. Some banking organizations provide even longer choices. This excites the people looking to invest in CDs, and they choose a lengthy term. However, that is not always the right choice. The thing is, people cannot be sure that CD interest rates will go up. Even if they do, no one knows what the increase in the percentage will be. While people investing in long-term plans can get stuck with a fixed-rate interest, those investing in shorter terms can enjoy better returns through reinvestments.

Not researching
Some people keep dealing with the same bank they are comfortable with. But this might cost them in the long run. One should shop around to understand the investment rates at different banks. Chances are that a new bank would be willing to pay a higher interest rate on a CD than the existing bank. Additionally, where physical banks are less flexible, online banks generally have a higher rate of interest.

Picking the wrong kind
Individuals often fail to look into the different kinds of CDs available to them and instead stick to the standard option. With standard CDs, one works with a fixed term and ROI. If they withdraw early, they incur penalties. This can be avoided by investing in a no-penalty CD, where investments can be withdrawn without extra charges. Typically, these come with a shorter-term plan. For people who want to see an increase in their interest rate, there are step-up CDs. These are long-term plans that provide periodic rises in the interest rate without having to withdraw and reinvest. Bump-up CDs are another option that gives investors the power to bump their interest rates once during their term period. While sifting through the choices, it is crucial to keep in mind that all the different kinds of CDs offer a lower ROI than the standard CD.

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