Tuesday, September 25, 2018

Greetings Thrifty Friends,

Most financial experts will advise you to keep enough cash in a savings account as an emergency fund to cover at least six months worth of expenses. This is in addition to long-term savings like an IRA or a 401k.

And it makes perfect sense. If your furnace blows up, or you are hit with a major car repair, or heaven forbid you find yourself back on the job market for a few months, you don't want to rely entirely on credit cards.

But say you are financially responsible and you DO have six months worth of spending cash in a savings account. The rest must be gravy, right?

If you have a few extra thousand lying around, up your savings game with CDs.

Keep pinchin' those pennies,
Penny

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TODAY'S THRIFTY TIP:

With certificates of deposit at banks (called share certificates at credit unions), you commit to setting aside your cash for a set period of time. In return, you earn a better interest rate than with a regular savings account. Plus, the temptation to dip into that money is dampened by the penalty you would incur with an early withdrawal.

The trick is finding the right balance between having your money accessible and letting it grow. CDs can be a great tool to help achieve overall savings goals, as long as you scout out the best rates.

Short-term CDs can be less than 12 months.

Securing a CD with the highest interest rate and avoiding early withdrawal fees should be your main priorities. Short-term CDs make the second goal possible. They don't do as well with the first goal. Bank-issued three-month CDs come with an average annual percentage yield of just 0.15%. That's not much more than you'd get on a basic savings account at a brick-and-mortar bank. BUT your money stays very liquid with only a 3 month commitment.

Mid-range CDs (1-3 years)

Better rates, more discipline required

With a one-year CD, you will have to work a little harder to stay disciplined and not withdraw your funds prematurely. In exchange, you will receive a slightly better rate. The average APY for a one-year bank-issued CD is 0.41%. Just be sure that you won't need quick access that cash or you might be tempted to dip into your CD.

Long-term CDs (4-5 years)

Best rates, if you can handle the commitment

If you are handing over your money for up to five years, you will want a stellar rate in return. Bank-issued five-year CDs have an average rate of 1.07%. But credit unions and online-only banks will be your best bet, with some offering long-term CD rates over 3%.