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CDs for savings goals

By Sheyna Steiner ·
Wednesday, December 7, 2011
Posted: 12 pm ET

As everyone is well aware, CD rates are low and will be low for the near future which makes CDs less than ideal for long-term savings or income.

However, CDs are still excellent vehicles for accomplishing short-term savings goals. Not everyone grapples with self-control when it comes to money but the early withdrawal penalty on CDs can be effective mechanism for keeping hands out of the cookie jar and maintaining savings discipline.

That may be helpful at the end of the year as more Americans are resolving to increase their savings, a recent survey by Fidelity Investments has found.

Of the Americans who are considering financial resolutions for 2012, nearly half, 46 percent, "say saving more is their top priority, with a median annual target of $2,400 for long- and short-term goals, double last year’s goal of $1,200," according to the Dec. 7 press release.

The survey found that savings goals have shifted recently. Naturally, saving for the long-term, namely retirement takes the cake: 62 percent of respondents say they are saving for the long-term versus 34 percent who listed short-term savings goals.

But hardly any of those who say they are saving for short-term goals are socking away money for frivolous purchases. Only 5 percent report saving for a luxury item -- down from 19 percent last year, the Fidelity press release tells us. Saving for a home upgrade or repair was a popular answer for 45 percent of Americans and saving for an emergency fund rose to 65 percent from 50 percent last year.

Unfortunately, prudent savings behavior is motivated by insecurity it seems. Despite numerous economic reports indicating a (slowly) growing economy, 84 percent of the respondents to Fidelity's survey say the economy is in or is likely to suffer a double-dip recession.

Cue the sad trombone noise here.

Do you feel comfortable using CDs for short-term savings goals? What about long-term?

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1 Comment
December 08, 2011 at 10:08 am

You're probably better off with an MMA account than a CD if you want short term savings. And in case of an emergency, it's already liquid and ready to go. And at some places, there are no penalties for "withdrawing early"... assuming you didn't open the account and closed it in the same month.