Tips on opening a 2-year CD


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If you’re thinking about purchasing a 2-year CD, you’re going to have to do some comparison shopping to make sure you’re getting the best deal.

A 2-year CD can be a good fit for consumers searching for a safe investment that earns more interest than a typical checking or savings account. However, in the current rising rate environment, comparing the annual percentage yield (APY) on one-year CDs and 18-month CDs should be a part of your shopping.

What are you using the money for?

CDs are a safe way to take advantage of higher APYs that might not be available in a savings account. Unlike the stock market, CDs usually offer a fixed APY and principal protection – assuming that you hold your CD for the duration of term and that your CD is through an FDIC-insured bank and within the FDIC’s coverage guidelines.

But making the decision to open a 2-year CD comes down to more than just the APY. It also depends on what your goal is for this money.

Before opening a 2-year CD, ask yourself this question: Are these funds that you truly don’t see yourself using for two years? If so, then it may be the right product for you.

“Generally, people are looking for (CDs) because they want a very low-risk investment, but they want to earn a little bit more interest than what a savings account or a money market account is offering,”says Rockie Zeigler, certified financial planner at RP Zeigler Investment Services.

“What are you doing with the money?” Zeigler asks. “That’d be my first question if someone walked in and said, ‘I’m looking to buy a CD.’ I would just say, ‘Well, sure, what are you saving the money for? What’s your goal? What do you need it for?’ ‘Oh, you need it to buy a house in two years? Well sure, have it mature just before that.’”

Be aware of the current interest rate environment

Interest rates are on the rise. The Federal Reserve has raised rates eight times since the financial crisis, and CD rates have perked up as well.

“In an interest environment like this, it all depends on (the consumer’s) goals,” Zeigler says. “Generally, a CD is bought because it carries no principal risk.”

And rates should continue rising in the coming years. Economic projections from the Federal Reserve’s September’s meeting suggest the central bank could raise rates three times in 2019 and at least once in 2020.

Building a CD ladder can help you earn current CD yields while also being able to take advantage of higher rates in the future.

Shop around for the best 2-year CD

You’re likely not going to find the highest-yielding CD at your local bank. For that, you’re likely going to have to check out an online, or direct, bank.

“Sometimes I have clients that say, ‘Well I only want to stay local. I want to be able to go to the bank and take my money if I need it,’” says Crystal Rau, certified financial planner at Beyond Balanced Financial Planning. “But at credit unions and local banks, you’re not always going to find the best rate — especially with all these online banks that have low overheads. It really can pay you quite nicely if you do some research.”

You can compare CDs on Bankrate to find 2-year CDs that pay well above the average yield.