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MoneyWatch: Managing Your Money

Why you shouldn't wait to open a CD

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By
Matt Richardson
Sr. Managing Editor, Managing Your Money
Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
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Matt Richardson

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gettyimages-1456916366.jpg
Higher interest rates make now a great time to open a certificate of deposit (CD) account. Getty Images

When it comes to personal finances, timing can be crucial. 

Many prospective homeowners, for example, would have benefited from buying a home a few years ago when interest rates were significantly lower. In today's high rate environment, however, home buying has become cost-prohibitive. Homeowners looking to refinance may have also lost an opportune time to act.

Higher interest rates haven't been all bad news, however. In fact, they've significantly increased the benefits of deposit accounts like certificates of deposits (CD) and high-yield savings. Rates on these accounts have jumped exponentially, making now a great time to get started. For CDs, in particular, there are multiple compelling reasons to act promptly.

If you think a CD sounds beneficial for your needs then .

Why you shouldn't wait to open a CD

Here are three reasons why you should stop waiting to open a CD account.

You could be making more money

If your money is currently parked in a regular savings account, then you're losing money by not transferring some (or all) of it into a CD account. Just do the math. The average interest rate on a savings account currently is around 0.39% according to the . Interest rates on CDs, however, are many times higher than that. It's not unusual for account holders to secure CD interest rates of 3.5% to 4.5% or higher in today's economy. 

How much more money could you be making? After 12 months in a regular savings account with a rate of 0.39%, a $1,000 deposit will have only grown to $1,003.90. But that same amount in a CD with an interest rate of 3.5% will have grown to $1,035.00. The higher the rate (and the more of an initial deposit) the greater your return.

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Rates could drop

While today's rate environment is favorable for deposit vehicles like CDs and high-yield savings accounts there's no way to know where they'll be in the future. It's possible they could rise again but it's also possible (if not likely) that they will stay flat or even drop. In the latter two cases, you will have lost money by not acting when the time was right.

Timing the market is difficult. Avoid it and take advantage of CD rates now. You can also ladder your accounts, with different amounts and different expiration dates, so that you have a better chance of maximizing your returns. And remember: CD rates are fixed, so even if overall rates fall during your term you'll be locked in at the rate you opened it with. So get an account while rates are still favorable.

It can protect your money now

If your savings accounts have been hurt by rising expenses and nagging inflation you're not alone. But make moves to stop the damage by protecting your money now. A CD won't allow you to withdraw funds until the term has expired (without incurring a penalty). It's a natural way, then, to protect your money from constant withdrawals while growing it at a higher interest rate. Just make sure you only deposit an amount you feel comfortable living without, otherwise the penalties for early withdrawal could erase most (or all) of the interest you earned. 

The bottom line

While now may not be a great time to buy a home or refinance an existing one, the climate isn't all bad either. It's particularly advantageous for those looking to protect and grow their money with a CD. These potential account holders shouldn't wait to open a CD because they're likely already losing money without it. Rates could also drop, so it makes sense to be proactive. It can also help protect against constant withdrawals that a regular savings account may already be subject to. 

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Edited by Kendall Little

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