Here on The Debt Hawk, I love to talk about getting out of debt. But, today, I want to look at something a little different. I want to talk about savings.
The other end of the debt equation is saving money for the future and one of the best ways to do that is by investing in CDs.
I'm going to focus on how a Citibank CD can be used to save money for the next year, three years, five year, or even further out. I chose Citibank CD rates not because they are the best (they aren't typically the best CD rates), but because it's a large, national bank that a lot of people bank with.
What is a CD?
A certificate of deposit account is a savings account in which you “lock away” money for a specified amount of time (the term of the CD) and in return, the bank gives you a guaranteed percentage rate for that term. This means that while you can't withdraw the money early without incurring penalties, the bank is guaranteeing a given interest rate no matter how the market fluctuates.
Citibank Certificates of Deposits
Most CD rates at Citibank are based on how long the term of deposit lasts for. For instance, a five year term has a 2.50% annual percentage yield (APY). That yield is guaranteed for the full five years of the certificate.
Banks like certificates of deposits because they are guaranteed money (deposits) on their books for a specific amount of time. Customers like the CD because it has a guaranteed rate of return and is FDIC insured.
To get Citibank CD rates, a minimum deposit of $500 is required to open and maintain the account. Assuming that is what you start with, after five years, that $500 at 2.50% APY means that, compounded monthly, your total after five years would be $552.54. Not much, but you started small.
Now consider what you could do with that if you have $5,000, $10,000 or more to deposit. This is why CD accounts are so popular amongst investors. They are used as a guaranteed baseline for many investments, planned events (weddings, college, etc.) and more. Farmers even use them to deposit money in the fall to purchase seeds in the spring. Basically, CDs are great for any short term savings or savings for a defined purpose.
Over the next few days, I'll be talking about savings and what types of savings accounts work for what situation. A certificate of deposit, as outlined here, is a great way to save money to get a much higher return than is possible with most other savings account types.
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