Posted On: September 26, 2018 by Peoples Bank in: Budgeting Family Friendly Financial Education Personal Finance Saving Money Savings
Short-term savings goals can be difficult to achieve.
Putting money away for something two or three years away, like a wedding or a down payment for a house, may not warrant an investment in the stock market, which can lead to a higher reward but comes with a higher risk. But letting the money sit in a low-yield savings account won’t lead to significant growth.
The sweet spot is the certificate of deposit (CD), which offers the security and safety of traditional savings accounts with growth comparable to money market accounts.
A CD is a place to put your money over the short term, between six months and five years, depending on your financial institution. While you will risk a penalty if you touch the funds before the maturity date, compound interest will help your money grow considerably.
CDs are one of the best options around when talking about short-term saving.
The basics
Most financial institutions offer numerous CD options with different lengths. Generally, the shorter the term, the lower the interest rate. The interest rate is fixed and your money is compounded monthly, semi-annually, annually or on maturity date, depending on what institution or CD you choose.
Many banks will also offer special rates for certain term lengths. Check out Peoples Bank’s current CD specials here.
The downfall of a CD is flexibility. Unlike a savings or money market account, where you can withdraw or deposit money whenever you want, taking your money out of a CD before the maturity date can mean the loss of interest accrued and, in some instances, part of the principal balance.
Going above and beyond
The bonus of a CD is that up to $250,000 of the money is insured by the Federal Deposit Insurance Corp. (FDIC). But for those who are depositing more than that amount, there is a program in place to ensure your money is safe.
Peoples Bank is a part of the Certificate of Deposit Account Registry Service (CDARS). Since the FDIC only covers up to $250,000 per depositor, per institution and per ownership category, CDARS breaks up the money into amounts less than $250,000 and disperses it throughout its networks of banks across the nation.
This way, instead of individually going to different banks to deposit less than $250,000, you can work with one bank and rate and still receive the benefits of FDIC insurance.
Even though the money is dispersed in other banks, you still receive one statement. It’s a good way to receive the benefits of the FDIC insurance and large CDs without the hassle.
“Acceess to the CDARS program is a benefit we can offer to our customers and somebody who is in the situation of having more than $250,000 to deposit,” said Denise Paustian, treasury management specialist. “It’s all filtered through one bank, so they don’t have to go to several banks to accomplish this.”
Click here to find out more about Peoples Bank’s CD offerings.