Boost Your Savings With a CD

Written by Credit Union of Texas
Published February 12, 2019
boost your earnings with a CD boost your earnings with a CD

If you don’t have a portion of your savings in a CD, you may be selling your earnings short. This article explains how to change that.

First, a quick look at savings accounts. Why are they popular? At a minimum, savings accounts do exactly what they promise: they save your money. Furthermore, savings accounts allow you to withdraw part or all of your money, any time you want, penalty-free. Meanwhile, your deposit continues earning interest with zero risk of losing value.

Sounds like a no-brainer, right? And for some of your savings, it’s the smartest choice. But for money you won’t need access to for a few months or more, a CD may be the more prudent, profitable option, especially in the medium to long term.

The higher the better

Compared with savings, a CD earns more money, due to its higher annual percentage yield (APY). In banking terms, APY measures the interest rate your CD earns each year. In human terms, the higher the APY, the more you get paid. Credit unions like CUTX generally offer a higher APY/interest rate for CDs than for savings. In return, when a customer opens a CD, he or she agrees not to withdraw from the account for a specified, fixed amount of time (a "term"). Term lengths at CUTX range from six months to 60 months, with plenty of options in between. When your CD reaches the end of its term, your funds (along with interest earned) become available to you to either reinvest into another CD or withdraw.

It’s all about interest

That makes CDs less flexible than savings. But the tradeoff is often made up in dollars. Even a high-yield savings account can’t match the gains of a medium-term CD. Think of it this way – putting some of your funds into a CD is your way of conveying to your financial institution that you intend to keep the money there for a specified amount of time, and in exchange, your financial institution is able to offer you a better APY.

CUTX offers a variety of flexible CD terms ranging from six months to five years so you can structure your savings portfolio the way you want.

It’s all about the future

A lot of people find that using CDs helps them save for more long-term goals because the funds aren’t as easy to access as they would be in a regular savings account. But don’t worry, your funds are still available to you in case of an emergency.

A common question about CDs: What happens if I need to withdraw money from my CD account? Ultimately, the answer depends on the specific financial institution. At CUTX, we don’t extort customers needing cash for unforeseen emergencies (or sudden opportunities). Our penalty fees for early withdrawal are reasonable and fair:

  • If the CD term is less than 12 months, the penalty is 30 days of interest.
  • If the CD term is 12 months, the penalty is 90 days of interest.
  • If the CD term is more than 12 months, the penalty is 180 days of interest.

Don’t go it alone

Opening a CD account takes careful planning. It also requires you to set aside a certain amount of cash – $5,000 to $10,000 is a good start. The decisions can seem immense. Fortunately, you don’t have to figure out everything by yourself. When you’re ready, just call CUTX. We’ll assign a CD expert to help evaluate your finances, calculate your first deposit, and choose the best term-length for your situation.