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Understanding Certificates of Deposit (CDs) with O1ne Mortgage

At O1ne Mortgage, we are committed to helping you make informed financial decisions. If you have any mortgage-related needs, feel free to call us at 213-732-3074. In this article, we will explore how CDs work, the best time to buy a CD, and how to maximize your CD rates.

How CDs Work

A certificate of deposit (CD) is a savings account that offers a guaranteed interest rate in exchange for keeping your money in the account for a specified term. Typically, longer CD terms provide higher interest rates. When you open a CD, you agree to lock your money in the account for a set period, usually earning higher annual percentage yields (APYs) compared to other savings options. For instance, as of October 2023, the national average yield on a 12-month CD is 5.46%, while a traditional savings account averages just 0.46%.

CD terms can range from three months to five years, with minimum deposits varying from $500 to $2,500 or more. CDs are generally considered a safe investment, as they are typically insured by the FDIC or NCUA up to $250,000 per depositor, per insured bank, and per ownership category. However, always verify that your CD is federally insured before opening an account.

When Is the Best Time to Buy a CD?

The optimal time to purchase a CD is when interest rates are high. As of November 2023, the benchmark interest rate is at 5.4%, its highest in 22 years. If you expect rates to drop soon, locking in a higher rate with a long-term CD can stabilize your earnings. Additionally, buying a CD can be beneficial when you have a specific savings goal, such as a home down payment or a wedding. Aligning your CD term with your savings timeline can help you reach your financial objectives.

How to Make the Most out of CD Rates

Maximizing your CD rates involves choosing the right strategy or type of CD. Here are some options:

• CD Ladder: Open multiple CDs with staggered maturity dates to access your funds periodically without early withdrawal penalties.
• CD Barbell: Use a mix of short- and long-term CDs to meet both short-term and long-term savings goals.
• Bump-up CDs: Increase your interest rate once during the term if rates rise, though these often start with a lower initial APY.
• Step-up CDs: Your bank automatically increases your yield at regular intervals, but these may also start with a lower initial rate.
• No-penalty CDs: Withdraw your money anytime without penalties, though these typically offer lower APYs.
• Jumbo CDs: Ideal for large deposits, these offer higher rates but require substantial minimum deposits, often $100,000 or more.

The Bottom Line

Saving money is crucial for financial health, but it’s also important to manage debt effectively. While earning a high yield on a CD is beneficial, prioritizing high-interest debt repayment can often be more advantageous. Consider using strategies like the debt snowball or debt avalanche method to tackle your debt. Additionally, track your progress with free credit monitoring to see any changes in your credit report.

For any mortgage-related inquiries, don’t hesitate to contact O1ne Mortgage at 213-732-3074. We’re here to help you achieve your financial goals with confidence.

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