Understanding High-Yield CDs: A Smart Investment Choice

When it comes to saving money, finding the right account to maximize your returns is crucial. High-yield certificates of deposit (CDs) offer a compelling option for those looking to grow their savings with minimal risk. In this blog, we will explore what high-yield CDs are, how they work, and how they compare to high-yield savings accounts. If you have any mortgage service needs, don’t hesitate to call O1ne Mortgage at 213-732-3074. Our team is here to help you make the best financial decisions.

What Is a High-Yield CD?

A high-yield CD is a type of deposit account that offers a higher interest rate compared to traditional savings accounts. When you invest in a high-yield CD, you commit a fixed sum of money for a specified period, ranging from a few months to several years. These CDs are available from banks, credit unions, and online banks.

High-yield CDs share many similarities with traditional CDs, including initial deposits, terms, and early withdrawal penalties. However, the key difference lies in the annual percentage yield (APY). High-yield CDs offer a higher APY, making them an attractive option for those looking to earn more interest on their savings.

How Does a High-Yield CD Work?

When you open a high-yield CD, you provide a deposit and choose a term length, such as one year, three years, or five years. This deposit becomes the basis on which you earn interest during the maturity period of your high-yield CD. At the end of the term, you receive your initial deposit plus any interest earned.

Minimum deposit amounts for high-yield CDs vary, with many being at or below $5,000, and some having no minimum deposit. APYs can also differ from one financial institution to another. Currently, it’s not uncommon to see high-yield CD APYs well over 4%, depending on the term. This is significantly higher than the APYs offered by most traditional CDs.

For example, if you deposit $1,000 into a 12-month high-yield CD with an APY of 4.5%, you’ll earn $45 in interest. In contrast, a traditional CD with a 1.4% APY would only earn you $14 in interest. If you deposit $25,000 into the same 12-month high-yield CD, you’ll earn $1,125 in interest, compared to just $425 with a traditional CD.

It’s important to note that if you cash in your CD before it matures, you may incur a penalty, usually expressed as a number of months’ worth of interest. However, some institutions may waive the penalty if you’ve held the CD for a minimum period.

High-Yield CD vs. High-Yield Savings Account

Both high-yield CDs and high-yield savings accounts offer excellent options for saving money. However, the best choice depends on how long you’re willing to leave your money in the account and your need for liquidity.

High-Yield CDs

• Rate: Locked-in fixed rate for the term length, beneficial if rates decrease during the term.
• APY: Depends on the financial institution and the CD’s term length; longer terms often yield higher APYs.
• Minimum Deposit: May or may not have a minimum deposit, depending on the bank.
• Liquidity: Withdrawing money before the maturity date could result in a penalty.

High-Yield Savings Account

• Rate: Variable rates that can change at any time, beneficial if rates increase.
• APY: Depends on the financial institution, interest compounding frequency, and account balance; higher balances may yield higher APYs.
• Minimum Deposit: May or may not have a minimum deposit, depending on the bank.
• Liquidity: Typically allows access to money at any time, but may restrict the number of withdrawals per month.

Get Your Money’s Worth

If you’re looking for a low-risk way to earn more interest and generate decent returns, and you don’t need access to your money for a set period, a high-yield CD might be the answer. The trade-off is that if you need your money before the maturity date, you could face a penalty.

At O1ne Mortgage, we understand the importance of making informed financial decisions. Whether you’re considering a high-yield CD or exploring other savings options, our team is here to help. Call us at 213-732-3074 for any mortgage service needs. Let us guide you towards the best financial solutions tailored to your goals.

Investing in a high-yield CD can be a smart move for those looking to grow their savings with minimal risk. By understanding how these accounts work and comparing them to other savings options, you can make the best choice for your financial future. Contact O1ne Mortgage today and let us help you achieve your financial goals.