Savings Accounts vs. CDs: Where to Stash Your Cash
If you’re ready to put away some funds for a future goal, it’s smart to take a look at what savings accounts and CDs have to offer.
A savings account is a very safe place to put your money. Your funds are insured, you can generally access them any time, you can transfer money in and out of the account, and you’ll even earn some interest. These accounts are an especially great choice for keeping some cash available for emergencies.
A challenge with savings accounts is that while your money is safe from risk, it can fall prey to inflation. The interest rate on most savings accounts is less than the average increase in the cost of goods and services each year. While this may not be a big deal on a relatively small amount of money, it can have a significant impact on larger amounts, especially in the long-term. Also, while access to the cash in your accounts is great, if you find yourself tapping your savings for spending money, that access might be counterproductive.
Certificates of Deposit (CDs)
Like a savings account, a CD is an insured, low-risk savings tool. However, CDs typically offer higher interest rates than most savings accounts, and the funds are locked in for a specified period of time in exchange for a fixed rate of return. Typically, the longer the term of the CD, the higher the rate will be. The downside is that if you need to get access to the money you deposited, you’ll most likely have to pay an early-withdrawal fee.
Using the CD Ladder
A great strategy for increasing the return on your savings without tying up too much of your money at any one time is the CD ladder. Take the amount of money you want to put away and divide it among several CDs, some with shorter terms and lower rates of return, but with the peace of mind of knowing you’ll be able to access the cash in a matter of months, and others with longer terms and higher rates of return.
Best of Both Worlds
When deciding between savings accounts and CDs, you may find that a combination is the wisest move. Stash some cash in a savings account in case of emergency, so you can get to it quickly and without penalty. Then, earn a higher interest rate on the rest of your savings by socking it away for a longer term in a CD, or several CDs. You can also use your savings account as a tool to prepare for using CDs by having money transferred to it every pay period. When you get to an amount you feel comfortable with, pull it out and put it in a CD.
The Credit Union offers a variety of savings options, including CDs ranging in term from three to sixty months with competitive rates and periodic special offers. Whatever your savings goal, there’s an account to help reach it.