Investments are key in growing money and wealth. While at it, we prioritize investments with low risks and higher returns. 2-year CDs are excellent examples of solid investments with guaranteed returns and no risks.
So, which are the best CD rates for 2 years? We have that, and more.
CDs let you save your money and earn fixed interests paid upon maturity. There are short, medium, and long-term CDs.
Short-term CDs generally attract lower interests than their long-term counterparts.
But, while they won’t earn you as much as other investments would, perhaps riskier ventures, CDs are among the safest way to grow your savings.
The federal government insures up to $250,000 of your invested amount from any organizational mishaps.
Investors choose between long and short-term CDs depending on the savings goals.
It’s also crucial to note that CDs, especially short-term CDs are more on locking and storing value, than growth.
Investing in CDs calls for commitment. Withdrawing the principal amount before maturity will mean violating the agreement. And, that will mean the loss of part of your interests through penalties.
So, if you have a problem with commitment, short-term CDs will do just fine. Just the thought of penalties will keep you motivated to continue saving.
CDs take on the compound interest approach to work out rates.
CD rates are compounded by multiplying the principal amount by the existing market interest rates. All these are added to your balance and paid upon maturity.
You start earning interest the day you make the first deposit. These are then paid monthly, quarterly, semi-annually, or annually.
Different institutions compound their interests daily, weekly, or monthly. The frequency at which an institution compounds your interest determines how much you ultimately earn. Prioritize institutions that compound their rates more frequently, preferably daily.
How much you have in your account will also greatly determine how much you earn as interest. The higher your principal amount, the higher the yields.
The conditions of the market also have an impact on your expected earnings. A downward trend in the financial market rates will mean lower rates.
Please note that your rates are calculated at the beginning of your term. Once you enter the agreement, the interests are locked regardless of the market trends.
What rates you choose will depend on your ultimate savings goal. Given the present rates, investing in short-term CDs seems like a worthy course.
It would be smart to get the lower rates for a shorter period than getting locked with lower rates for a longer term.
Other factors you want to consider include.
Please note that your earned interests are subject to tax. And, that usually happens upon maturity of your term.
So, you have the money you’re looking to save. You’ve settled on Certificate of Deposits as the best method.
The next important is deciding how long you’re willing to leave your money untouched. You can choose between long-term and short-term CDs.
Short-term CDs will lock your money for 3 to 12 months, usually spread between 3, 6, and 12-month terms.
Middle-term CDs are anywhere between 2 to 3 years.
Long-term CDs, on the other hand, lock your money for more than one year, usually 4 to 5 years.
The Short-term’s main selling point is the flexibility and access to your funds. Since the maturity time is short, you don’t have to struggle much with commitment.
Still, should you choose to withdraw before maturity, you’ll pay lower penalties compared to how much you’d pay as for long-term CDs.
On the flipside, short-term CDs attract lower rates than their counterpart long-term CDs. And, because the funds mature faster, you should plan in advance how you intend to use them.
Long-term CDs call for extra commitment. However, every moment of it is worth the effort. They are known to attract the best rates.
But, on the flip side, long-term CDs will attract the steepest penalties should you withdraw before maturity. You’re also locked out on possible rises in the market rates.
To bridge the gap between short, middle, and long-term CDs, you should consider building a CD ladder. This involves investing in different CDs with different maturity terms, usually a mix of long-term and short-term CDs.
This way, you’ll have funds available at different times. Upon maturity, you can also choose to reinvest the funds to take advantage of rising market rates.
Low level of commitment required – Do you have trouble saving? Can’t wait? Well, 2 years' CDs could best for you. Just a little wait and you’ll be having your money fully matured with all the interest rates earned.
Lower rates – Short-term CDs attract the lowest rates compared to their long-term counterparts. Depending on the market conditions, stocks also tend to attract high returns compared to CDs.
Guaranteed returns – with CDs, you’re not faced with the fear of uncertainties like it is with the stock market. Your money is locked and you’ll receive the principal amount and interests at the end of the term whether there is a rise or fall in the financial markets.
Early withdrawal penalties – like any other CDs, withdrawing your short-term CDs before maturity attracts penalties. This is unlike the traditional savings accounts that allow you to withdraw an anytime.
Guaranteed safety – up to $250,000 of your invested money is insured by the federal government against risks associated with your institution. If you intend to invest a larger amount, you can do it by buying different CDs from different institutions. This will guarantee the safety of your money and also build your CD ladder.
Fixed returns – the institution you choose to buy CDs with will calculate and let you know beforehand how much you’ll earn upon maturity of your term. Since the rates are locked, yours won't have a chance to grow should there be an upward trend in the financial markets.
Lower penalties – short and mid-term CDs generally attract lower penalties should you withdraw before the maturity of your term.
Please note that requirements differ from one institution to another. It is, therefore, wise to read and understand the organization’s policies beforehand.
Also, choose an institution that conforms to your savings goals, charge lower penalties, and offer higher interests.
As a remedy for early withdrawal penalties, go for no-penalty CDs. These will offer flexibility and full access to your money anytime. However, their interest rates are lower compared to other CDs.
Yes. However, 2-year CDs are more short-term investments. Banks and credit unions generally offer lower rates to these compared to long-term CDs.
Banks and credit unions offer the best rates for CDs. The table above points out some of the lenders with the best rates.
No, 2-year CDs lets you take advantage of different renewals in a year. You also enjoy lots of flexibility.
These are CDs that don’t charge early withdrawal penalties.
Anytime you have money you won’t be using for a long time and are willing to invest and grow it.