12 Vital Questions to Ask About Short-Term CDs


Saving money and making wise investments are two financial factors that you should take time to research. If you’re not saving money already, you need to start today. Whether you’re looking for short-term CDs to help you earn some cash quickly or you want a savings account, the information below will help you get started.

When you’re investigating saving money, you’ll find a variety of options from which to choose. You’ll discover checking accounts that earn interest, long-term CDs, high-yield savings accounts, and many more. Deciding which option fits your needs can be overwhelming. However, it doesn’t have to be. Uncover all the facts you should know about short-term CDs below and see if this deposit account is a good fit for your retirement and savings goals.

Short-Term CDs, What Are They?

In basic terms, a short-term CD will allow you to earn interest on your deposit for a term of three to twelve months. These are shorter terms than your typical CD account offers, and rates will vary. A short-term CD means you’re going to tie up your money for a year or less to have it work for you. 

How Does This Deposit Account Work?

You’ll need to check with the financial institution you’re using, but the steps are generally all the same. You’ll acquire the opening deposit required by the bank or online bank you’re going with, and then they will open the account for you. If you don’t already have a relationship with the institution, you’ll need to provide the identity of who you are and go through the opening process. Once your money is in the account, you cannot withdraw the money until the CD matures. There are penalties charged if there is an early withdrawal on most any type of CD account.

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Do Short-Term CDs Make Solid Investments?

As you’re growing your money, short-term CDs can make solid investments. CDs allow you to earn money with your cash-on-hand without thinking about it. You deposit the cash into the account and let it grow. For example, if you come across a large amount of money but you’re not sure what to do with it, this is a great place to let it grow while you’re making plans. CDs are minimal risk products allowing you to have peace of mind when you invest

Short-term CD products give you some time to figure out what your next step is in the investment game. You can easily earn money in an insured, risk-free setting while you discover what you want to invest in long-term.

For example, look at your summer vacation plans this year. Do you want to travel around the world? Are you planning on a trip to somewhere you’ve never been? Some people take out travel loans when it comes to their journeys. While that can be okay if you pay it off quickly, it’s not always the wisest option. If you invest in a short-term CD now, by summertime, you’ll have some money built up to pay for your trip. 

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Can You Lose Money When Opening a CD?

The primary way you lose money when you open a CD product is if you withdraw the product too early. Because the FDIC insures these certificates of deposit, your money is protected. If you withdraw your money from the CD before it matures, you’ll face some stiff penalties in most cases. Try to avoid taking the money out of a CD account until the maturity date is up. This will ensure you do not lose money on this type of account.

How Much Should You Deposit in a Short-Term CD?

One factor that goes into your opening deposit is how much is required by the financial institution you’re working with. Another factor you must consider is, what are your short-term financial goals? What do you want to get out of this deposit account? Where are you headed with your finances when this short-term CD is mature? 

You also want to set out long-term financial goals, as well. What are your retirement plans? Do you want to travel? How are you going to pay for college for your children? These are just some of the questions you should consider. 

Short-Term CDs

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Short-Term CDs Versus a Money Market Account

Deciding on the best investment for yourself takes a little time and consideration. Short-term CDs work great for some investors, while money market accounts are better for others. Determining which works best for you means you need to take a look at both of them side by side. 

Money Market Advantages

There are several advantages to choosing a money market account over a short-term CD. One of those is the liquidity of your assets. With a money market, you’re allowed to write checks or make ATM withdrawals when you need cash. 

CD Advantages

One main advantage of using a short-term CD instead of the money market is you’re going to earn more interest. While the interest in a MM account may fluctuate, the CD rate will stay the same. You’ll skip out on any fees as well unless you withdraw the money early. 

Why Open a Short-Term CD Instead of a Savings Account?

The advantages here are similar to the ones mentioned above. You’ll find some benefits to a savings account, such as withdrawals allowed and low minimum balances. However, you’re still going to earn more on a CD. The decision hinges on what you want to gain out of your cash. Consider how long you can go without access to it. This will help you to determine what deposit account you’d prefer to open. Savings accounts are perfect for putting money aside for trips or emergency expenses. However, you do not want to keep large amounts sitting in an account at a low rate.

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Are CDs Solid Investments in 2019?

Yes, CDs are great investments, even in 2019! These products assist you in reaching your long-term and short-term goals. Whether you’re trying to prepare for retirement or your child’s college, CDs can help. The FDIC protects them and works for you without you having to think. CDs also provide a minimal risk when you’re investing. Because they are insured, you gain peace of mind with where your money is. It isn’t like the stock market where you can lose big. 

Are CDs a Good Retirement Strategy?

Short-term CDs and long-term CDs are both great for helping you plan your retirement strategy. It doesn’t matter if you’re in your 20’s or your 40’s, it’s never too early to start saving. You should consider the lifestyle you live now and what you want to continue. Planning for retirement is critical. It allows you to live comfortably well into your golden years. 

Planning for Retirement

A few things to consider when you’re in retirement planning: 

  • What expenses do you currently have, and which ones will you continue to have?
  • What additional expenses will you take on once you retire?
  • Consider the taxes you’ll need to pay and account for those.
  • Do you want to travel? 
  • Will you keep your home or downsize? 

All of these are good questions to consider when you’re planning for your future retirement. CDs help you to prepare for those days by earning you cash on the money you already have. They also allow you to build your finances and invest more in the future.

Short-Term CDs

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Can You Cash Your Short-Term CD in Early?

While it is an option to cash in early, you want to avoid that if possible. Cashing in a short-term CD can have stiff penalties. Try starting them at maybe a three-month interval. Shorter periods will get you used to not having access to the money to see how it will work. If you cash out your CD, it may even penalize some of the deposit you put in. The fees could be quite high. You could lose more than the interest you’ve earned.

Is It Possible to Add Money Monthly to a CD?

That depends on the financial institution that you use. You must read the fine print on your CD account agreement. Some accounts allow for additional funds to be added. Other accounts will require you to open new accounts. It is best to discuss this with your financial advisor or bank representative. You may find short-term CDs that provide this clause. Adding funds is unique to each account you own. 

What Are the Disadvantages of This Product?

While these are great deposit accounts, you want to be aware of the disadvantages. One of the major ones is the fee when you withdraw funds early. This can be quite high, depending on how long it is left in the CD term. 

Another disadvantage to this type of deposit account is the lack of access to your money. If you have a money market account, you can easily access your cash. With a CD, the limited access pertains to the date of maturity. 

You must avoid putting all of your savings in one type of deposit account, as well. You need to diversify your investment by utilizing a variety of savings strategies.

When the CD is mature, you must contact the bank. You’ll need to decide what to do with the money after the term is up. If you don’t let them know what your wishes are, you may end up in the same type of CD. Sometimes this is okay if you don’t need to change the money around. However, if you want to move it to another product, you could be stuck.

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So, What Account Works Best?

Consider what you want your money to do for you. If you’re saving for future use, then a long-term CD may be best. If you’re going to invest in something soon, then short-term CDs are where it’s at. CDs genuinely are a solid investment for anyone who wants to earn at low risk. You can easily grow your money while you’re enjoying life.

What is the best short-term CD product you’ve found in your research so far? Tell us about your experiences with short-term CDs in the comments below. 

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