CDs or Saving Accounts: Which is Better
Opening Deposit
Certificate of deposits require a higher opening deposit than savings accounts. Your deposit can be as much as $500 or $1,000. When you open a saving account the opening deposit is somewhere in the area of $50 to $100 much less. So if you don't have a lot of money to start then maybe a saving account is going to be your best option.
Term
A certificate of deposit will require you to keep your money on deposit for a fixed term. Terms can range from 3 months to 5 years. When you decide to take your money out of a CD before the term ends or maturity, as it's called, you will be subject to an early withdrawal penalty which could be costly. If you can do without your money for awhile then you may want to consider a CD. With a savings account you can get your money any time you want.
Interest rate
The interest rate on CD's is much higher than a savings account. Overtime you will be able to watch your money grow much quicker than it will with a saving account.
Maturity
When your CD matures you must decide what to do. You can take the money out of the account and close it or you can roll your CD over for the same term or a different term.
Higher earnings
If you want to earn more interest with a CD then you may want to open the account for a longer term. The majority of banks will pay you more interest when you take out a CD for a longer period of time. It's the banks way of paying you for tying your money up for a long time. With a savings account there is nothing you can do to increase your interest rate.
Fixed rate
The interest rate on CD's is fixed which makes them safe investments. You never have to worry about your interest rate fluctuating up or down. Sometimes when you roll over your CD you may have the opportunity to take advantage of rolling over at a higher interest rate, but it all depends on what the prevailing rates of interest are at the time of rollover.
Source: http://en.wikipedia.org/wiki/Certificate_of_deposit
Published by Melvin Richardson
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A penalty can be 3 months of interest.
If you take no action after maturity your CD will rollover automatically.
CD's and savings accounts are insured by the FDIC.
1 Comments
Post a CommentWell explained and detailed! Wow, nice job on this.