5 Things You Should Know Before Opening a CD

As a low-risk investment, a certificate of deposit (CD) offers many benefits. Like a savings account, a CD allows your money to earn interest, it is FDIC insured, and you have a wide variety of CD options to choose from. A CD generally offers higher rates than most savings accounts, but those rates change regularly.

Laura Scharr-Bykowsky is a certified financial planner and principal of a Columbia, South Carolina, financial planning firm called Ascend Financial Planning. She says she “urge[s] clients to have FDIC safe cash reserves, and a CD fits the bill.” She adds that “CDs are attractive now, particularly the longer-term ones, given the current stock market … a CD protects the principal if interest rates change.”

With all the benefits a CD offers, on the surface it appears as though you cannot go wrong with one. There are, however, some factors to consider before opening one up. Performing an analysis of the situation could mean the difference between earning money as planned and experiencing disappointment. Scharr suggests that you examine some of the following details before opening your CD.