Many people decide to invest their money in a Certificate of Deposit account because of the low risk involved and the higher return. CD investors don’t require as much liquidity as you would find in a traditional savings account and would like to make more money than a checking or savings account interest rate returns. However, did you know that the length of your CD’s term affects the interest rate?
To be sure you get real value out of your CD, commit to an investment of at least one year. Three- and six-month CDs are also available, but keep in mind that interest is considered taxable income and you will pay taxes on whatever you make in that short time period. The longer your money remains invested, the higher the interest rate will be and tax costs won’t outweigh the profit.
Most people can stand to have some of their money tied up for a year if it means a greater return in the future. CD options that span multiple years are available as well. Consider also that as interest rates rise and fall, and the longer the term of your CD, the greater the possibility you will miss out on rising interest rates. Locking your money into a CD will prevent you from taking a loss as rates decline, but also from making a higher return as they rise.
When you turn to Montgomery Banking Rates for access to the most up-to-date information on CD interest rates, consider what you have read before determining the length of your CD. Your desired level of risk versus reward should be a strong determining factor.
