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Courtesy Choncé Maddox
- Interest rates on CDs have appealing rates right now, though the terms vary significantly.
- The penalty for withdrawing funds early means I won't be tempted to pull it out early.
- When we buy a house in a few years, 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 all too happy to close last December and wanted to be very strategic with the proceeds from the sale. We invested and saved some of the money, then decided to put $10,000 into a CD. Here's why we made this decision and how putting this money into a CD will help with our future goals.
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1. The interest rate caught my eye
CDs are supposed to offer better rewards for your savings. In previous years, I never really considered using one since the interest rates always seemed so low.
I recently saw that Synchrony Bank was advertising very appealing CD rates so 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 site where you can plug in how much you want to deposit and your desired term to see what you'll earn. Other online banks are offering higher CD rates right now too, so I definitely shopped around.
Some banks offered different CD rates for specific terms or maturity dates. For example, I saw that one bank offered a CD with a slightly higher interest rate than the one offered by Synchrony Bank, but it required a maturity date of 11 months to get this offer.
The maturity date represents a time in the future where you can withdraw your deposit and the interest earnings penalty-free. I wanted to keep my money in the account for at least three years, so I was glad to lock in the rate Synchrony was offering for this term.
2. Not having instant access sounded appealing
A CD account is not very liquid. Most banks will charge a penalty fee if you try to withdraw the money before the maturity rate. Early withdrawal fees vary from bank to bank, but could be anywhere from three months of interest to an entire year of interest earnings.
Paying these penalties would just defeat the purpose of opening a CD and trying to earn interest on your money. Luckily, I have no intention of touching this money beforehand. We already save and invest and could use our emergency fund if we needed money fast for something unexpected. Or, we'd just have to cash flow certain costs that come up.
The idea of being penalized for withdrawing this money too soon actually helps take care of the temptation to do so. Based on our goals for this money, it's important to put some distance between the savings and our general income so it's not too easy to access.
3. We plan to use this money when we buy another house
When we moved 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 with the housing market in the next few years.
My husband and I both decided it would be at least three years before we bought another house. Housing prices are actually higher in our new state, Tennessee — we lived in Illinois previously.
So while we'll need time to save up a larger 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 do buy a home again and need extra money to cover various costs.
Given our goals for the $10,000 we put into a CD, I wouldn't feel that comfortable investing the money instead since our investments are for more long-term goals. Therefore, they can withstand the ups and downs of the market.