If you’re contemplating opening up a certificate of deposit, you’re making the right choice for your financial future. The confusion in selecting the best CD account comes in when people have to decide which deposit term is right for them. Most people commonly choose between a 6 month CD and a 12 month CD, but what are the advantages and disadvantages of each? Neither is a bad choice, so let’s take a closer look at what each offers you.
6 Month CD Rates
Shorter term certificate of deposit accounts are ideal for people who may need access to their money in the near future, or are uncomfortable not having access to their funds for a long period of time. 6 month certificates are perfect for these situations because they can still offer a good return rate with a minimal deposit term. You may also want to consider a 6 month CD if you just want to earn a little more interest on your money before a large purchase. Here are some quick features of this type of CD:
Short deposit term
Average rate of return
Very little commitment required
12 Month CD Rates
These types of deposit accounts are considered medium term, since they do not go longer than a year or more like some CDs. 12 month certificates are great for people who are looking for a little bit more interest and do not mind having their funds tied up for half a year. Usually, people who choose to invest in a 1 year CD have a higher tolerance for inaccessibility to their funds. They usually have a higher amount of money saved for emergencies and so do not need access to their money. They are also great because you can switch over to another CD rate after only a year, unlike with longer term certificates or jumbo CDs. Here are some quick features of this type of CD:
Average deposit term
Good rate of return
Above average commitment required
Both a 6 month CD rate and a 12 month CD rate are great, but the right one depends on your personal situation. If you can afford to wait longer, a 6 month CD will generally give you better return rates. Of course, it is never recommended that you invest money you may need for the year. Build up an emergency fund, pay down all debt and then start investing. It’s a great way for you to take work towards true financial freedom.
Phi Vo is a personal finance writer for a number of finance and insurance blogs dedicated to helping people save as much money as possible.