Smart Strategies for Investing in a CD or Money Market
Reflective of market trends, CD and Money Market rates are on the rise. While not at the levels that you or your parents may have cashed in on during the 80s, these investments still offer a solid savings strategy and can be leveraged in several ways.
How to get started:
- Determine how much you can invest. This should be an amount you can readily set aside. Don’t get discouraged if you don’t think you have enough. Many products offer low opening deposits. If you don’t have anything accumulated, consider setting up direct deposit into a share account to help you save.
- Consider your plans for the money. Are they long- or short-term? For example, do you have a sum ready to invest but want access to later on? Perhaps for a down payment on a house? Or are your plans more long-range, like paying for your kids’ college or saving for retirement?
- Choose a product and term. Once your plans are laid out, decide on a product and term. Most importantly, how long do you want to invest, and do you need access to your funds? Term almost always references the length of time for your investment.
- Compare rates and features. There are helpful online tools to use. Also consider the benefits of choosing an insured deposit product. Federal insurance programs (for credit unions, the NCUA) protect your investment and the interest you earn – without chance of loss.
- Earn the most you can. Remember the general rule: the longer the term and larger the investment, the higher rate you’ll typically earn.
These generally earn more than a regular savings or money market account. Terms can range from 90 days to 60 months. Upon choosing your term, you agree to lock in your funds for that period at a fixed rate. When the period ends, you can decide to withdraw your money or reinvest it in another CD. However, if you need to access your money before your term is complete, you are subject to early withdrawal penalties from the financial institution.
These are designed to help you save for retirement; many are structured like a CD and sometimes called a “CD IRA.” Once your term is complete, you will need to roll over your IRA funds into another IRA. Withdrawals can start without penalty at age 59½.
These combine the benefit of higher earnings and the ability to withdraw funds. Money market accounts may require that you maintain a minimum balance but give you the flexibility to make a certain number of withdrawals per month.
APR vs. APY
No matter the product you choose, your money will earn an APR (Annual Percentage Rate) and yield or APY (Annual Percentage Yield). Savvy savers will want to compare the account’s APY, (what they can expect to earn on their funds with the compounding of interest) as well as any early withdrawal fees. Always read the fine print!
Need more advice?
“We’re here to help,” says Rachel Moreland, Westnedge branch manager for KALSEE Credit Union. “One point I make to first-time investors is that where they are today doesn’t necessarily dictate where they’ll be in the future. Take the time to think about your plans – and savings goals – before investing. That’s where we can offer suggestions or a strategy best for your needs.”
Moreland also suggests picking up a book, like “The Millionaire Next Door,” by Thomas J. Stanley, for even more perspective.
Regardless, building a nest egg starts with choosing a place you can trust with your money. At KALSEE, we provide the choices and objectivity you need. Click to learn about our current CD and Money Market options, or call us at 269.382.7800.
*APY = Annual Percentage Yield.