Planning your retirement with Certificates of Deposit

Planning your retirement with Certificates of Deposit may be the answer to the question: “What is your retirement plan?”

The importance of saving for retirement is constantly emphasized in our lives so many people look for different and best options to save for old age. Many of us value employment opportunities that offer 401k retirement accounts, particularly those who are lucky enough to have their contributions matched by their employers. Apart from the 401k, people use the IRA method and the certificates of deposit (CDs).

Planning your retirement Certificates of Deposit Philadelphia

What is a certificate of deposit?

It’s a type of savings account that you use for keeping your money for a certain period of time, known as the term. The term can usually be 3 months to a 5-year certificate of deposit.

If you want to open a CD, you’d normally need to deposit some money. Some CDs have the minimum deposit amounts, hundreds, or thousands of dollars while others have no minimum opening deposit.

Once you open a CD and you commit to the bank for a certain period, they pay you an interest rate at the same time. The interest payments may vary so pay attention to how interest accumulates. Your bank will inform you how much interest you will earn by giving you an annual percentage yield, or APY. This will help you compare different options of certificates of deposit.

When you compare traditional savings or checking accounts to CDs, you’ll get a higher interest rate in exchange for agreeing to leave your money in the account for the full term if you choose to open a CD. You may get higher interest rates on longer-term CDs.

What is CD maturity? It’s the time at the end of your agreed term. When your certificate of deposit reaches the so-called maturity, you can decide what to do with the money. Your options

are to withdraw the money or to reinvest in another CD. Whatever you decide, you need to inform the bank about your decision and you’ll be able to withdraw the money or move it to another CD without a bank charged penalty. If you do nothing during this grace period, banks will, typically, reinvest your money to another CD with the same term as the previous one.

It is vital to know that if you decide to withdraw money before the end of the term, you’ll have to pay a penalty. Penalties may vary but you will, probably, need to give up a portion of your interest earnings, and sometimes it can be a lot.

Many people opt for purchasing more than one CD. This is called laddering. For instance, you may purchase a one-year, two-year, three-year, four-year, and five-year CD and each year, one of them will mature. This way, you’ll be able to access your funds and the earned interest without having to pay a bank penalty. This is a good approach if interest rates rise throughout the economy.

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Consider opening a CD

Certificates of deposit are usually low-risk investments because they are generally FDIC insured. It means that they are insured by the Federal Deposit Insurance Corporation. So, if your bank participates, your money will be protected and it is generally up to $250,000.00

Another reason why you should consider a CD as a strong saving motivation is because you can’t withdraw funds before the term ends without paying an early withdrawal penalty.

Certificates of deposit are considered a good option for retirement savings since they are low-risk. The ones who are more conservative with their money, like soon-to-be retirees,
appreciate CDs and their predictable earnings. Also, people who are already in retirement can use CDs to help them save even more. In this case, laddering should be a good decision.

Planning your retirement with Certificates of Deposit (CD) gives you a strategic and safe savings option. Your money will be there and the interest too, once your CD reaches maturity. Prudential Bank offers a variety of terms from 91 days to 60 months to fit any savings plan. Call us for current interest rates and specials and choose a CD as your retirement plan.

 

Article Sources

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  1. https://www.fdic.gov/
  2. https://www.fdic.gov/deposit/deposits/faq.html

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