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One advantage of higher interest rates is the potential to earn more interest with a CD account. While CD accounts can be beneficial for saving and investing, it’s important to understand how they work and who they are suitable for before deciding to invest in one.

FinanceMaster.org interviewed James Morgan, Vice President of Savings and Deposits at Capital One, to learn the key things to know before opening a CD account.

CD Accounts are Ideal for Long-Term Savings Goals

If you’re looking for quick returns, a CD may not be the best choice. “Although CD accounts can be a great savings option for anyone, they may not be the best option for someone looking for a quick return on their money,” Morgan explained. However, CDs can greatly benefit those with long-term savings goals. “CDs are a great choice for someone who has a middle- or long-term goal they are saving for, like a big trip, home improvement or even a new house,” Morgan said. “A CD is a smart and safe way to accrue guaranteed interest on your money.”

Shorter-term CDs typically offer lower interest rates. “CDs with a 12-month or less term benefit consumers who have shorter-term goals, like an upcoming vacation or a personal expense, and may need to access their money sooner,” Morgan said. “Long-term CDs generally have a maturity term that is longer than a year and are recommended for consumers who do not expect to withdraw their money soon. This benefits consumers who are saving for long-term goals, like buying a house or saving for college.”

You’ll Know Exactly How Much Interest You Can Earn

“One of the advantages to opening a CD account is that they come with fixed rates,” Morgan noted. “This means that in exchange for relatively lower liquid access to your money, CDs offer a fixed rate, unlike traditional savings accounts, which have variable interest rates that are subject to change.” This means that even if the Fed lowers rates, your returns will not be affected. “CDs also offer guaranteed returns, meaning your earnings are guaranteed, no matter how the market fares, and you will know how much money you will earn at the beginning of your term,” Morgan said. “Once you select your term length from the available options, Capital One 360 CDs offer a fixed rate and guaranteed returns that aren’t subject to market changes. A variety of terms are offered to align best with your needs and goals.”

CDs are a Safe Place to Park Your Money

If you prefer low-risk investments, CDs provide peace of mind. “CDs are seen as safe savings options,” Morgan affirmed. “Given CDs are FDIC-insured up to $250,000 for single account owners according to FDIC ownership guidelines, CDs provide a safe and straightforward way to keep your savings growing.”

CDs are Less Liquid Than Other Accounts

While CDs offer numerous benefits, it’s important to consider their lower liquidity compared to other savings options. “CDs require you to deposit your money for a certain term length, with the expectation that you will not withdraw your money until the end of the term or risk facing a penalty,” Morgan cautioned. “CD account holders can’t easily access their money if an unanticipated need arises. There are early withdrawal penalties — if you do withdraw your money before the term, you might incur an early withdrawal fee.”

CDs Have a Relatively Low Barrier to Entry

“One of the great things about CDs is that anyone can open one,” Morgan emphasized. “You don’t need a six-figure salary to invest in one. Capital One CDs have no minimum balance requirement.”

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