A CD, or a Certificate of Deposit, is an excellent way to make your money work for you. Putting your money into a high-rate certificate of deposit allows holders to reap the benefits of higher interest rates. Similar to a savings account, a CD is an FDIC-insured account. It has a fixed interest rate and a fixed date of withdrawal (known as the maturity date).
With no monthly fees, CDs are often seen as a low-risk investment. If you don’t need the money in the account for the duration of the term, you can see a massive ROI; a five-year CD with a 2.50% APY (one of the highest rates you can find) will earn over $600 on a $5,000 deposit. It’s not nothing, and it sure beats accumulating pennies a low-interest savings account.
In late January of 2018, the Federal Reserve declined to change its benchmark rate; however, investors are expecting to see at least two additional rate increases this year. If your CD did not earn a high yield in 2017, there is a great change that will change in 2018; higher inflation expectations put pressure on rates, allowing them to rise.
If you choose to invest your money in a CD, opt for a short-term rate; 1-year CDs and online savings accounts are rising faster than long term rates, which means you will receive a better return on your investment. Long-term rates are dependent on more than the Fed; they also account for inflation expectations and economic growth. Regardless of your term, CD rates are expected to rise significantly in the coming year—possibly by 25%.