Thinking about investing in the most effective way? Do you wish to multiply your money? Let us discuss the two major aspects of banking services. A person can depend on one of these and decide how to enhance money growth. Banks offer their customer a Certificate of Deposit (CDs) or a savings account. It is up to you what to opt for. Now the question arises “Which is a better option, a CD or a Savings account”? When will the CDs earn you more than a savings account? Let us have a quick comparison of the major differences where the money should go.
What is Certificate of Deposit (CDs)
Several banks and credit unions offer a certificate of deposit. They provide the facility of interest rate premiums on the fixed amount deposited. The customer agrees with the bank to keep the amount untouched for a specific period. This provides a benefit to the customer in the following ways:
- The customer earns the interest amount.
- The money with the bank is considered safe.
- After the CD period is over, the customer gets the amount along with interest earned.
What is a Savings account?
The savings account is another premium service offered by the banks. They are a source of collecting funds in one place or using them for transactions worldwide. Almost everyone has a savings account in his/her name. Savings accounts are the most trusted service of the bank. Savings Account may benefit the customer in the following ways:
- The money deposited in the savings account earns a nominal interest rate.
- The owner of that account can use savings account money whenever he or she wants.
- Savings accounts can be opened easily and they require less paperwork.
Comparison Between CDs and Savings Account (Interest Rates)
When we particularly talk about the interest rate, the following figures can be obtained:
- Certificate of deposit (CDs) may earn higher interest rates when compared to saving accounts.
- CDs amount is agreed for a certain period, i.e., 6 months, 1 year, 5 years, etc. and therefore it earns more interest. The amount in a savings account does not have a specific period.
- The longer the duration of the CD, the more interest it earns. However, with a savings account, a nominal interest rate is provided.
CDs may earn you more than a savings account. All you need to do is
- Lock a particular amount with the bank.
- Try to keep the maturity period as long as possible, i.e., five years and above.
- The amount which is locked must be on a higher side.
- Collect your amount after the maturity period to avoid penalty charges.
Conclusion
With the above discussion, we can conclude that CDs will earn you more than a savings account. A smart decision can probably provide you with a better option to multiply your money within years. Moreover, investment requires tough analysis, but doing so will surely be fruitful. A Certificate of Deposit is a better decision.
