As a Texas resident, you have several options when it comes to investing your money. One of the most popular is investing in CDs. There are numerous misconceptions about Certificate of Deposits (CD), and here at Texas Bay, we want to help you understand them better.
What is a CD?
To put it simply, a Certificate of Deposit is a deposit where you earn dividends (interest at banks) on your savings. You open one with a fixed amount of money, but you may not withdraw it until the term is done. Each term is a specified amount of time that you decide when you open the CD account. You can choose from 6 months, 1 year, 5 years, and anything in between; it's up to you.
Finances can be a mystery, but as your trusted financial partner, we intend to help make finances a breeze. So, let us help you debunk a few CD myths:
- I will need a lot of money to open a CD. Not all do! Some can range between $500 to $1,000 and more. At Texas Bay, the minimum to open our standard CDs is $1,000. However, we offer one with an even lower initial deposit of $100: our Save to Win CD.
- I could lose my money with CDs. Actually, with federally insured CDs, you are insured up to $500,0002 at Texas Bay Credit Union. There are no stock market losses because it's money deposited that is backed by the government and additional insurance2.
- I can’t add any money to a CD during the term. – While that is true with normal CDs, there are special CDs out there that do allow deposits during the term. Texas Bay offers the Save to Win CD, where we encourage you to set up direct deposit to the CD during the term.
- The terms are too long. Terms can vary depending on the CD. The CD terms Texas Bay offers can be from 6 months to 60 months; we let you choose the time frame that fits your goal. Need to save for a vacation in 8 months or a wedding in 1 year then open the CD with the time frame that fits.
- There's only one type of CD. Definitely not. With Texas Bay, you have different types of CDs to choose from and ones that can fit your financial needs and goals.
- Save to Win – $100 to open, 12-month term, and earn monthly and quarterly entries for CASH prize drawings.
- Standard – $1,000 to open, terms 6-60 months.
- Jumbo - $50,000 to open, terms 6-60 months.
- IRA/Jumbo IRA – Similar to above, only with IRA CDs taxes are deferred, allowing more money to stay in the account.
- Callable 24-/60-Month – These are higher-risk CDs, in that the financial institution can "call" the CD, return your money, and pay you a pre-determined price.
- I will have a higher yield on dividends in my savings account. Quite the contrary. Savings accounts, generally, earn less than a CD, namely because you cannot withdraw funds from a CD for the term chosen without a penalty3, so you are compensated for this at a higher rate.
- If the Federal Reserve Rate goes down, my CD will lose money. The truth is, it’s the opposite. With a CD, you are choosing a term where the rate is guaranteed3 for the term. And, with rates high right now, it is the best time to open a CD, especially for longer terms. These rates are guaranteed for the term of the CD3.
- I lose my initial deposit amount if I have to withdraw from the CD for an emergency. With Texas Bay CDs, your base deposit is, generally, safe; you’ll get it back. The penalties are actually calculated against the dividends earned.
Some other facts you should consider when choosing a CD
- Calculate your CD earnings with Texas Bay’s Certificate of Deposit Calculator to help you determine how much to deposit and how long a term to choose.
- Consider “laddering” multiple CDs. This is a strategy used to stagger the maturity dates of your CDS with different terms and maturity dates. This way you have access to some of your funds without paying an early withdrawal penalty, while still earning a higher rate of return on your other CDs. Use our Certificate of Deposit Ladder Calculator to map out this strategy.
Still not sure what's best for you? Schedule an appointment with us, and find the one that best fits your needs!
2 Texas Bay Credit Union is federally insured by the National Credit Union Administration (NCUA), which is backed by the full faith and credit of the U.S. Government. NCUA provides protection for your account's funds. Additionally, we are happy to offer our members an additional $250,000 of savings protection to each qualifying account from Excess Share Insurance (ESI).
3 Rates subject to change without notice. Fees could reduce earnings. Early withdrawal penalties apply to all certificate accounts. Dividends are paid monthly. All accounts must remain open through the end of the dividend period or the maturity date to be paid the accrued dividends.