A Certificate of Deposit (CD) carries a higher interest rate and annual percentage yield than a regular savings account that you can access any time. To receive a higher interest rate (and higher annual percentage yield), you must commit your money for a specified period of time.
Interest Rate explained: The interest rate is simply the percentage of a sum of money charged for its use. The bank is using your money and is paying you a percentage of that money each year for its use.
Annual Percentage Yield explained: The effective annual rate of return taking into account the effect of compounding interest. As the bank credits you each month with your monthly interest payment, subsequent months earn interest on that additional money as well.
For funds that you have in your savings account that are in excess of what you need to have on hand to meet anticipated emergencies, you should consider a longer-term investment that has a higher yield, such as a CD.
Your commitment to a CD can range in time from a few months to a few years. The longer time you commit your funds to a CD, the higher the annual yield will be.
Use the calculator below to determine what’s best for you.