Certificate of deposit accounts can benefit in multiple ways. They are one of the safest investment options available. On the other hand they yield very high when compared to other savings accounts. The interest rates offered by banks for these accounts are very high when compared to checking accounts and money markets. Though one can carry out unlimited transactions with CD accounts, high returns makes them really attractive. Banks also have realized the potential of these accounts to attract people in large and have started to offer sky high interest rates.
The key reasons for which you should open a CD account are
a) They are very safe
b) Returns are high
c) They can add to your credit history
They are very safe
CD accounts are very safe. Most of the banks insure these accounts under FDIC coverage. The upper limit for the protection would normally be around 200,000$ to 250,000$. In case if you want to invest amounts higher than 250,000 USD it is good to split the amount into smaller amounts and invest in multiple CD schemes offered by multiple banks. This ensures every investment is wholly protected. Experts suggest a strategy called ladder strategy. In this strategy one needs to invest in multiple banks such that they mature at different times. This is equivalent to getting regular returns from any other account.
Returns are high
Any annual percentage yield of 2% or higher can be considered high. Among the high yielding accounts CD accounts are comparable and yield even much more than money market accounts. Banks like AllyBank, AIG, American Express offer rates even higher than 2.5% for two year CD.
They can add to your credit history
Credit history is very important to everyone especially during times when one approaches banks for loans and financial aid. CD accounts can add to your credit history in a positive way.