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- Interest rates on CDs have attractive rates now, although the terms vary significantly.
- The penalty for withdrawing funds early means that I won’t be tempted to withdraw them early.
- When we buy a house a few years from now, the money will be great for any unexpected costs.
Last year my husband and I sold our house and moved out of state. It was anything but a stress free experience. After interest rates went up and our first buyer dropped out, it took us six months to sell.
We were very happy with the closing last December and wanted to be very strategic with the proceeds of the sale. We invested and saved some of the money, so we decided to put $10,000 into a CD. See why we made this decision and how putting that money into a CD will help with our future goals.
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1. The interest rate caught my eye
CDs should offer better rewards for your savings. In years past, I never thought of using one as the interest rates always seemed so low.
I recently saw that Synchrony Bank was advertising very attractive CD rates as long as you keep your money in the account for a minimum of 14 months. CDs offer a guaranteed return, so the higher the interest rate, the better.
Synchrony Bank also has a calculator on the website where you can enter how much you want to deposit and the desired term to see how much you will earn. Other online banks are offering higher CD rates now too, so I definitely looked it up.
Some banks offered different CD rates for specific terms or maturity dates. For example, I saw that a bank offered a CD with a slightly higher interest rate than what Synchrony Bank offered, but required an 11-month maturity date to get that offer.
The due date represents a time in the future when you can withdraw your deposit and interest without penalty. I wanted to keep my money in the account for at least three years, so I was happy to lock in the rate Synchrony was offering for this period.
2. Not having instant access seemed attractive
A CD account is not very liquid. Most banks will charge you a penalty if you try to withdraw money before the due date. Early withdrawal fees vary from bank to bank, but can range from three months of interest to a full year of interest earnings.
Paying these penalties would just defeat the purpose of opening a CD and trying to earn interest on your money. Fortunately, I have no intention of touching that money beforehand. We’ve already saved and invested and could use our emergency fund if we needed quick cash for something unexpected. Or we would simply have to cash flow certain costs that arise.
The idea of ​​being penalized for withdrawing that money too soon actually helps to quell the temptation to do so. Based on our goals for that money, it’s important to put some distance between savings and our overall income so it’s not too easy to access.
3. We plan to use this money when we buy another house.
When we moved in last year, we decided to start renting and get to know our new area first. Also, I want to sit back and see what happens to the real estate market in the next few years.
My husband and I decided that it would be at least three years before we bought another house. Housing prices are actually higher in our new state, Tennessee – we’ve lived in Illinois previously.
So while we need time to save up a bigger down payment, we also have more knowledge than we did as first-time homebuyers. Buying a new home comes with so many expected and unexpected costs, such as closing costs, moving expenses, repairs, furniture, and home upgrades.
Our CD money will come in handy whenever we buy a house again and need extra cash to cover various costs.
Given our goals for the $10,000 we put into a CD, I wouldn’t feel comfortable investing the money as our investments are for long term goals. Therefore, they can withstand the ups and downs of the market.
