Short-term savers: Consider a 6-month CD
A six-month CD, or certificate of deposit, can be a valuable savings product for many, primarily because they earn guaranteed interest and these investments at a federally insured financial institution are guaranteed up to $250,000 per depositor.
Definition of a 6-month CD
A six-month CD is a savings product, usually requiring a minimum deposit, which earns interest while it is kept with the financial institution. As with all CDs, a penalty applies for early withdrawal.
Advantages of a 6-month CD
There are two main advantages of a six-month CD. First, the principal invested is guaranteed to be returned. Second, interest is earned as long as the funds are not withdrawn prior to the maturity date. If you are tempted to tap your savings unnecessarily, the penalty aspect of a CD can be a good incentive to leave the funds intact and earning interest.
Disadvantages of a 6-month CD
In general, interest rates for CDs are lowest in the short-term investments, so the rates earned on funds invested in a six-month CD may be lower than with a longer term instrument. Savers should be sure to compare rates on CDs, savings accounts and money market accounts, since all three of these savings products are virtually risk-free if held at a federally insured institution. A six-month CD requires the funds to remain untouched, so savers cannot take advantage of other investment opportunities during the term.
Who benefits most from a 6-month CD?
A 6-month CD is most appealing to savers with a short-term goal, such as taking a vacation or holding a mortgage down payment. The safety of the funds in a 6-month CD is the appeal, along with the discipline imposed by the penalty if you take out money too early.
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