Saving is an excellent way to secure your future financially. It’s even better when you’re planning to purchase an asset or fund some projects in the future. But, while saving in traditional savings accounts is good, they may not grow your money given their low rates.
Investing in CDs, however, will serve both purposes – save and grow your funds. They come with guaranteed fixed returns, usually higher than the typical interest rates for traditional savings accounts.
Long-term CDs, for instance, come with even higher returns. In this article, we’ll explore some of the best CD rates for 10 years in the market today. We’ll also cover everything you need to know to get started with CDs.
A CD – certificate of deposit – is a savings account, mostly in banks and credit unions, that allows you to save for a fixed term. You basically agree with your preferred institution to lock your savings for 3 months to 10 years for guaranteed interests.
For these accounts, the rule of the thumb is – the longer your term, the more you’ll earn in interests. But, before choosing a longer term, you should be sure that you’ll be able to leave the money untouched for that period.
You should also consider such factors as the minimum deposit required, early withdrawal fees, and the interest rates. You’ll also choose your preferred term based on what your financial goals are.
Generally, you’re guaranteed the safety of your CD savings. The federal government through the FDIC and National Credit Union Administration (NCUA) in banks and credit unions respectively, secures up to $250,000 of your total savings.
Since the returns are fixed, you’ll still be paid at the agreed rate even when there’s a fall in the market rates. However, on the flip side, you’ll miss out on better rates should there be an increase in the market rates.
While calculating interests on CDs, banks and credit unions consider two crucial aspects – the market rate and the principal amount.
Your institution then multiplies your principal amount by the present market rate. The resulting amount is then added to your principal amount and paid at the end of the term. Remember CD rates are compounded.
You’ll know the rates offered by an institution by looking at the Annual Percentage Yield – APY.
Depending on your institution, interests are mostly compounded daily, quarterly, semi-annually, or annually.
The more frequently your institution computes your rates, the higher you’ll earn. Therefore, prioritize banks or credit unions that compound interests daily.
Your principal will start earning interests right from the day you enter into an agreement with your preferred institution.
Savers can choose between short-term (1 to 12 months), mid-term (2- 4 years), and long-term (5 – 10 years) CDs.
Investing in CDs requires commitment and discipline. Before choosing a 10-year (long-term) CD, ensure you’re comfortable keeping your money locked for a decade.
Keep in mind that institutions charge early withdrawal fees. You’ll part with some penalties should you be tempted to withdraw before the agreed maturity date. And, here, the rule of the thumb is – the higher the term, the higher the early withdrawal fees.
However, there are still non-penalty CDs that won’t charge you any fees for withdrawing before maturity.
Your ultimate goal should dictate the type of CD you choose. CDs are best for such short-term goals as buying a new car, house or financing other projects. If yours is to buy a new car in a year, for instance, then you would choose a 1-year CD.
Interest rates should also form the basis of your choice. Check out what your preferred institution offers for specific terms and choose what best conforms with your goals.
Also, keep in mind that typical CDs don’t allow you to add on your initial deposit once you’ve chosen your preferred term. You, therefore want to keep this in mind as you make your choice.
Alternatively, look for institutions that allow continuous additional deposits. Banks, especially online banks are best known for this. Although most of them still impose such restrictions as having minimum and maximum deposits, they can still serve you perfectly.
Such are called add-on CDs. They’ll help you take advantage of a rise or a projected possible rise of market rates.
Apart from your financial goals, your needs and present rate environment are the most crucial factors to consider when choosing to go for either short-term or long-term CDs.
How soon you’ll need back your money is also a crucial factor to consider. Short-term CDs are best for those looking to have their cash back sooner. They are also perfect for taking advantage of a higher rate environment.
Short-term CDs also attract lower penalties should you withdraw before maturity.
Long-term CDs, on the other hand, have a maturity period of between 5 to 10 years, or more, depending on the institution in question. However, CDs with terms higher than 10 years are rare.
They often attract the highest interest rates. Banks and credit unions repay your willingness to leave them your money for a long time by offering higher rates.
However, on the flip side, they attract the steepest penalties. Withdrawing early will cost you a couple of months’ worth of interest. You’ll, therefore, want to think carefully before picking a long term. But even more importantly, before withdrawing before maturity.
So, which one is the best between long-term and short-term CDs?
Go for short-term CDs if you can’t afford to keep your money locked for a long time. The same applies to when you have short-term financial goals. They are also the best for taking advantage of higher market rates.
On the other hand, long-term CDs are best for those with long-term financial goals. They’re also an excellent option for those looking to grow their wealth significantly.
Alternatively, you could take on both of them. Spreading your funds between several long-term and short-term CDs will help you take advantage of a rise in the market rates.
This way, you’ll also have your money spread across different close maturity dates. You’ll also build your ladder.
Up next you will see the ups and downs of 10-Years CD Rates.
Higher returns – Long-term CDs attract higher returns. Here’s a chance to grow your wealth significantly and achieve your long-term financial goals. You tend to gain more with long-term CDs than you would with a traditional savings account.
Requires a high level of commitment – you’ll need to stay highly disciplined to leave your money untouched for 10 years. That could mean forgoing some of the present needs that you deemed important.
A good savings plan – CDs are a good place to keep your money. This is especially important with such goals as buying an asset or funding an important project. The thought of paying high penalties will have you staying committed and avoiding early withdrawals.
Steep penalties – withdrawing before maturity attracts high penalties. This could cost you a couple of months’ interest.
Guaranteed security for your funds – Funds invested on CDs are secure. They are federally-insured through the FDIC and National Credit Union Administration (NCUA) in banks and credit unions respectively. Up to $250,000 of individual savings are fully insured by the federal government. If you have to invest more than that amount, you can spread it over different CDs, preferably in different institutions.
The stock and other financial markets tend to attract higher returns than CDs.
Can diversify your savings – Investing in CDs is an excellent way to diversify your income while earning guaranteed higher rates.
Immune to fall in the market rates – CD rates are pre-determined. Once your principal amount is locked in, it’ll be immune to the turbulence in the market rates. You, therefore, won’t be affected by a downward trend in the market rates.
The process of opening a CD account is similar to that of opening a traditional savings account. It is rather easy and straightforward.
The first step would be to find a suitable institution. While at it, you’ll be keen to note their APY rates. You’ll also take note of the early-withdrawal penalties and if your bank or credit union offers additional CDs such as add-on CDs.
Online banks have the best rates due to their low operating costs.
Once you’ve identified your preferred institution, you’ll proceed to forward a formal application, basically filling out an application. While at it, you’ll need such personal details as your official names, age, and the details of your next of kin.
You’ll also need to fill in your correct address, and proof of income.
Once that is done, you’ll move to the verification stage – verification stage.
Your institution will require that you attach your national ID, valid driving license, or passport. Such are used to prove that you’re a legal resident of the United stated and have attained the age of majority, usually 18 and above in most states.
Be sure to familiarize yourself with your preferred institution’s regulations and policies before committing.
Please note that CDs are for those with money they won’t touch for a certain period, from 3 months. To avoid losses that come from withdrawing money prematurely, avoid investing money meant for emergencies or daily basic use on CDs.
Further note that your interests are subject to taxes. However, you’ll be taxed at the end of your term.
Also, don’t ignore new and less-known banks and credit unions. Such institutions tend to offer higher rates to attract new customers and compete with existing ones. As long as your funds are federally insured, they’ll be safe, even in less-known institutions.
Also, it’s not advisable to invest in a single CD in a single institution. Instead, consider growing your ladder and taking advantage of higher rates by investing in multiple CDs.
Is a type of savings account that allows you to keep your money locked for 10 years. It normally attracts the highest yields. Withdrawing before maturity also attracts the steepest penalties.
Online banks mostly offer better rates than the normal brick and mortar banks. Since they don’t run physical offices, they tend to have low overhead costs. They, instead use the money saved to offer better rates. And, since they tend to be less known, they use higher rates to attract more customers.
If CDs don’t interest you, then you can opt for traditional savings accounts. You can also try money market accounts. Treasury securities are also a worthy investment. They are safe and have good returns. Government bonds are also investments worth considering. They are backed by the US Government hence safe.
You can choose up to a 10-year term with most institutions. However, CDs undergo automatic renewal. Therefore, upon maturity, unless stated otherwise, your CDs will roll over to another term automatically. Your bank or credit union is obligated to inform you when your term matures.
10-year CDs are best for those with cash they’re not looking to touch in the next 10 years. They are an excellent way to store your money value, take advantage of a higher environmental rate, and significantly grow your savings.