Investing in CDs is an excellent strategy for money growth. Unlike bonds and the stock market, CDs don’t face the usual turbulence in the market rates. And, your returns are guaranteed.
Banks and credit unions have higher yields for 6 years CDs. We searched and shortlisted some of the institutions offering the best CD rates in the market. We also highlighted everything you need to know to kick start your savings journey with CDs.
It’s a savings plan by financial institutions that lets savers earn a fixed interest at the end of their preferred term.
Money on certificates of deposits is locked and available to users only upon maturity. An early withdrawal will mean payment of some penalties.
High-yield CDs tend to attract the highest CD rates. In the banking sector, 6 years is considered a long time. Banks and other financial institutions are, therefore, prepared to offer the best rates since you are lending them the money.
The highest standard long-term CDs stand at 10 years. Though some institutions could make an exception, getting a term higher than that isn’t as easy.
CDs are better than traditional savings accounts. Your CD savings are immune to a downward trend in the market rates.
Your CD savings are also secured. The federal government insures up to $250,000 of your saved cash.
Once you identify a suitable institution and your preferred term, you’ll then move to work out your projected earnings.
CD rates take on the compound interest approach. Your savings will start earning interests immediately after your term starts.
Financial institutions compound your interests daily or monthly. However, please note that the more regular your institution compounds your rate, the higher your expected returns. Therefore, prioritize institutions that compound your rates daily.
Online banks offer the best rates on CDs. Since they have no physical offices, they tend to have low operational costs. They, therefore channel the forgone costs to the savers inform of interests.
Don’t be afraid to invest in new financial institutions or those that are not widely known. Such tend to offer higher rates to attract customers. As long as an institution is federally-insured, you are guaranteed the safety of your savings.
Getting the most out of your savings first involves making sound choices. Choosing the right CD term is, therefore, crucial.
You’ll have three choices with CDs.
You can go for short-term CDs. These have a maturity term of between 1 to 12 months. They mature faster but tend to attract lower interests.
You can also choose to go with mid-term CDs. These have a maturity period of between 2 to 4 years.
Lastly, you can go with long-term CDs. These mature in between 5 to 10 years. You can also access longer terms, though it’s extremely rare.
How much you’re willing to invest in CDs is a factor you must also carefully consider. Remember, you won’t access your money throughout your chosen term. Plus, you also can’t add more cash on the initial deposit unless it’s an add-on CD.
Because of unforeseen circumstances, you might be forced to withdraw before maturity. As such, be sure to check how much it’ll cost you in terms of early withdrawal penalties. Banks and credit unions tend to charge lower.
Either way, carefully read through your preferred institution’s policies and guidelines and make sure you’re comfortable with them.
Investing in long-term CDs is a smart move. As long as you stay focused and committed to letting your money stay till maturity. You’ll grow your savings significantly.
No-penalty and liquid CDs are worth looking into. They’ll allow you to withdraw your savings before maturity without incurring any charges.
It’s also crucial to note that your earnings are subject to tax. However, that happens collectively upon maturity of your term.
Made a choice yet? Let’s walk you through that.
With your money and your preferred institution chosen, you want to carefully think about the suitable term for you.
Carefully go through the different offers from your financial institution.
Short-term CDs (1 to 12 months) attract lower interest rates, come with extra flexibility since you’ll access your money within a short period. That also implies that short-term CDs require a low level of commitment.
Since they mature fast, planning how to use them way before maturity is crucial.
Short-term CDs also attract lower penalties should you choose to withdraw your funds before maturity.
Long-term CDs, on the other hand, attract the highest rates. Since you let the financial institution handle your money for a long, they reward your loyalty by paying you higher rates.
However, on the flip side, long-term CDs attract the steepest penalties should you withdraw before maturity. And, since your money is locked for long, you could miss out on the future possible rise in the market rates.
Apart from CD terms, another crucial aspect you should consider is CD laddering. Spread out your CDs in different terms with different lenders. Doing so will see your CDs mature at different times.
Upon maturity, you should also consider reinvesting your earnings if you don’t have an immediate need for the cash. This also maximizes your earnings should there be a rise in interest rates.
Those looking to keep their money away for a long time and grow it significantly should consider investing in long-term CDs. If you’re disciplined enough to leave it untouched throughout the period, it’ll be a worthy course.
These are the Pros and Cons of having a CD of 6 Years.
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Higher interests – Long-term CDs attract the highest interests compared to their short-term counterparts. Since you’re willing to leave your savings in the hands of an institution for a long time, they act in good faith by offering higher rates. You’ll know this by seeing an organization’s APY.
High penalties – Long-term CDs attract the highest early withdrawal fees. Unless they are no-penalty CDs, only consider withdrawing long-term CDs if you have absolutely no other option. Withdrawing before maturity will cost you a couple of months’ interest.
Guaranteed returns – Your interests are calculated at the onset of your investment and remain the same throughout the term regardless of the changes in the market rates.
A high level of commitment needed – it takes lots of sacrifices to leave your money untouched for up to 6 years. Withdrawing early will have you pay hefty penalties.
Immune to negative changes in market rates – Since returns for CDs are fixed, your savings will be immune to the downward trends in rates. Unlike with shares and bonds, there’s no possibility of any losses whatsoever.
Fixed returns – The yields for CDs are fixed. This will, therefore, lock you out on opportunities to grow your savings should there be an increase in the market rates.
Guaranteed safety – Your CDs are federally-insured through the FICD. They insure up to $250,000 of your savings against any possible institutional risks. If you have more than $250k to invest in CDs, consider spreading it on different CDs with different terms.
An excellent savings plan – Planning to buy a house, vehicle, or any asset in the future? Saving on CDs will not only store your money value but grow it, too.
Before investing in CDs, you should first check on whether or not you qualify for an account with an institution.
Different institutions have different requirements you have to meet to qualify for a CD account. However, they are the same as those you need for a traditional savings account.
For starters, you should be a legal resident of the United States. You should also have attained the age of 18 years and above.
Your financial institution will ask for such verification documents as a valid national ID, passport, and driving license. These will be used to gauge your eligibility in terms of age and residential status.
Some institutions will ask for joining fees before you buy a CD account. However, most of them don’t. Be sure to ask beforehand.
You should also consider the minimum amount an institution accepts for investing in CDs. Ensure it is within the budget of what you wish to save.
Either way, shop around while comparing different aspects of different institutions such as policies, rates, and benefits. Choose one that aligns with your saving goals. Prioritize institutions with higher APY relative to the present national average.
The table above has the best banks and credit unions offering the best CD rates for 6 years. Be sure to check them out.
Yes. CDs are federally-insured with up to $250,000 in individual accounts.
With CDs, you’re guaranteed of your returns, safety of your money and you’re immune to turbulence in the market rates.
Banks and credit unions lock your money for a specific term and pay you interests higher than those of traditional savings accounts.
Savers can choose between short-term, mid-term, and long-term CDs. However, long-term CDs are the most preferred for higher rates.
Banks and credit unions offer some of the best rates. The table above has some of the best options you could consider.