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Every person handles their finances differently. Some will have creative ideas to save money. Others might be careless with it.

 

As for you, it may be a challenge figuring out how to plan your course for a bright financial future. What if there was a way you can save money in a place where you can accrue more interest than a traditional bank account? It’s possible with CDs or certificates of deposit.

 

The good news is that they are still essential to your personal financial planning. And we’ll explain why in this guide. Let’s get started.

How does a CD work?

The way a CD works is that it comes with fixed interest rates. Some of them may have variable rates. But what is the difference between the two?

 

A fixed interest CD will allow you to know how much you’ll earn by the time its term ends. If the rates rise, it may cause a dent in the amount of money you’ve deposited. Meanwhile, a variable rate can benefit you if those rates increase. 

 

CD terms can vary by length. You could have one with a term of 6 months or even a year and a half. When the term ends, the CD will be fully matured. 

 

Whatever funds are accrued in the CD can be withdrawn without risking any penalty fees. If you do that before the term ends, you could be subject to them. So be patient and don’t touch it until you know for sure that the maturity date has arrived.

 

After you’ve withdrawn the money, you can put it in your wallet. Or you can place it in a savings account by Western Alliance Bank if you choose not to carry it all in one place. Either way, a CD will be helpful in making sure you achieve whatever personal financial goal you set forth.

Stability and low-risk nature

One of the major reasons why a CD is essential to personal financial planning is that they are mostly stable. At the same time, you’re investing money into something that is low-risk and doesn’t have a lot of volatility. For those reasons, it might be the best place to put money into if you’re someone that is not willing to handle a great deal of risk.

 

Furthermore, you have FDIC insurance coverage. So if something happens, you’ll have peace of mind knowing you are insured. Giving you one more good reason why it’s good to put money in a CD whenever it’s necessary.

It generates income

CDs will play a crucial role in generating income. That’s because the interest rates will provide a reliable source. So when the time passes, you’ll earn more money because of it.

 

Keep in mind that the longer the term, the more money you can earn. Furthermore, higher term CDs will have higher interest rates than those with shorter ones. 

 

That’s why you’ll want to take your financial goals into consideration when looking at CDs. The questions you ask yourself should include:

 

• What is your number one financial goal?
• When do you want to achieve it?
• How much money do you believe is needed to accomplish this goal?

 

This is just a sample list of questions you can consider asking yourself. If your financial goals are longer-term, you could get away with putting money in a CD with a longer term such as a 1-year CD or beyond. So weigh your options carefully before you choose.

Great for capital preservation

If you want to preserve capital, a CD is your best option because of its low-risk nature. It will be difficult to achieve this if you choose a higher-risk investment strategy like stocks or mutual funds. Your money will grow beyond what you’ve initially put in so you’ll have more capital by the time the CD term has been reached.

 

All you need to do is place your money in one of these CDs and let it sit there. It also should be a good idea to set a reminder for when you need to check on it. For example, if you have a one year CD, be sure to set a reminder to one year from the day you’ve put money in it.

 

That way, you have the opportunity to withdraw it without the penalty fees. If you forget about it too long, it could cost you.

Final Thoughts

CDs are not a thing of the past. Nor will they go anytime soon. If you’re considering the idea of putting money into a CD, see which financial institutions near you will provide you the best deal. These can be excellent tools for your personal financial planning – whatever your financial goals may be. 

 

Be sure to carefully weigh your options before making your final decision. You’ll never know when a better deal comes along when it comes to interest rates, term length, and more.