What is a CD?

CD stands for certificate of deposit. What is a CD? It’s a federally insured savings account with a fixed interest rate and a fixed date of withdrawal. Credit unions near Detroit also offer their own version of CDs — share certificates — which are insured up to the account’s amount via the National Credit Union Administration. Read on to learn more about CDs, how they work, and their benefits.

CD vs. Traditional Saving Account

There are a few differences between a regular savings account and a CD. Here are two of the biggest differences:

  • Deposits: You can make deposits or withdraw money from your savings account more freely than you can from a CD. When you have a CD, you generally have to leave your funds untouched for a certain amount of time.
  • Term Lengths: CD terms can be a few days or up to a decade. The longer you leave your money untouched, the greater the amount of interest you’ll earn. Some five-year CD accounts, for example, offer an annual percentage yield (APY) of over 3%.

What Are the Benefits of a CD?

There are several different types of CDs, such as a bump-up CD, a step-up CD, or a jumbo CD. While they differ slightly in how they work, all CDs offer the same main benefit: higher APY rates than your average savings accounts.

With a five-year CD with a 3% APY, you may earn anywhere from $800 to $5,000 on a deposit. There are also three-month, six-month, and one-year CD options if you’d prefer to have access to your funds within a few months’ or one years’ time. If you’re sure you won’t need the funds you’ll be depositing into your CD, the high APY can pay off.

When is a Savings Account the Better Choice?

If you withdraw your money from your CD before it matures, chances are you’ll be charged a penalty. How much you’ll be charged varies, but in most cases, you’ll have to sacrifice a certain amount of APY you’ve earned. Before you set up a CD, you’ll want to learn more about the penalties for early withdrawal, so you know what to expect in that case. Again, CDs offer the best results for those who don’t intend to use the money they deposit. If you foresee a need for those funds, consider sticking with a traditional savings account.

Learn More About a CD with Public Service Credit Union

If you have questions about certificates of deposit and how they pertain to credit unions, contact us Public Service Credit Union. We can answer your questions and provide more tips on managing your finances, such as how to handle your first credit card and whether you can have a credit limit that’s too high. Our team of friendly experts is standing by to assist you in any way we can!

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