CD Savings Account – Certificate of Deposit vs High Interest Savings Accounts

With at call high interest savings accounts so easy to open and use and the official interest rates rising every month, or so it seems, are there any real benefits to locking your savings away in a CD account for a fixed term at a fixed rate? A CD savings account issues you with a certificate of deposit (CD) when you invest your savings with the bank, which states your investment term, your interest rate and your interest return and if you are looking for some stability in your finances and savings plans, a CD savings account may suit those needs.

Features of a CD Savings Account

While you may shy away from having your funds locked away where you can’t access them, consider the other features of a certificate of deposit, and how quickly and easily a CD savings account can help you grow your balance to achieve a savings or investment goal.

A certificate of deposit savings account:

• Is fixed and doesn’t need to be managed. While your savings are locked away in a fixed term deposit account you don’t have access to your funds and can’t make changes to the account. However, this makes a CD savings account a very easy to manage investment as you don’t need to have any specialised financial knowledge to manage and grow your savings, and you don’t have to devote time and energy every day to making decisions on the fate of your savings, and worrying whether you have made the right choice. Instead, your CD savings account earns a fixed rate of interest every day of your chosen term without requiring any input from you, and will pay your interest returns by cheque, or to the bank account you nominated when you began your certificate of deposit term.
• Is a safe investment from you and from the market. Choosing a fixed term you are also guaranteed a fixed interest rate, so your savings are safe from any drops in the market, or any reductions your CD savings account provider chooses to make to their interest rates and savings products. In addition, the funds you have locked away in your CD savings account are also safe from being spent by you or your partner if you are trying to reach a specific savings goal. Rather than being tempted to spend your savings on an impulse purchase, your funds are safely locked away out of mind and out of reach.
• Issues you a certificate of deposit. This is where the name comes from because in most cases when you open a fixed savings account for a chosen term, you will be issued with an actual certificate, with the details of your deposit. Your certificate of deposit will show the amount you have invested, how long you have invested for, at what interest rate and will also show the return you will receive at the end of the term. This adds to the security of the investment, as the certificate of deposit is issued by and must be honoured by the bank, so you know your savings will grow, and be available to you at the end of your term.

How to Benefit From Savings in a CD Account

So the idea of a fixed rate of return is starting to appeal? Well to help you decide if you can benefit from a CD savings account, and to make sure you get the highest yield, follow these saving and investment tips:

• You’re not tempted to spend your savings. If you know you are the kind of person who will be tempted to spend any amount they have access to, then you could benefit from a CD savings account. Even if you are lacking a bit of focus in what to do with your savings, you can save yourself from making an impulse purchase which turns out to be the wrong decision if you lock away your funds in a CD savings account. In this way you can take your time, any time you choose between one month and five years, to come to a decision which suits you, your family and your financial situation. For example, you may have saved for a home renovation, but haven’t finalised the plans; well instead of spending all your savings on the first plan the draftsman creates, you have time to consider your needs, ways you can cut costs and even a way you can afford an extension and some new furniture if you move slowly.
• A guaranteed return allows you to plan for your future. If you have deposited your savings in a CD account, you know what the return will be when you have access to those funds again. This means you can consider those builders’ quotes for the renovation, or alternatively look into other investment opportunities which are open to you with a larger balance, or consider your returns if you reinvested the whole amount in a new CD account.
• Wait until the end of the term to access your funds. Before you put your savings into a CD account, make sure you have a separate at call savings account and an accessible emergency fund available to you. This reduces the chance that you will have to access the savings in your CD account before the end of the term. If you access the savings in a CD account early, you may be charged early access fees, and will in most cases also earn a reduced rate of interest.

For more information about the best CD savings accounts available the current rates and terms on offer, view our comparison tables here. You can also follow a secure link from our comparison table to your chosen provider’s website where you can find out more about certificates of deposit and investment options, or start an application online today.