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- I got an offer for a CD at a 5.30% APY, which was better than what my high-yield savings account has.
- However, we're saving up to put a down payment on a home as soon as one is available.
- In order to put the money in a CD, we would have to pull it from our emergency savings.
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The email subject arrived, bold and promising (and personalized) in my inbox.
"Get in on this rate before it's gone, Cheryl!"
The rate that the email was referring to was for a certificate of deposit. This specific advertisem*nt was for a 5.30% APY with no minimum balance CD, and it piqued my interest.
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CDs often come with fixed APYs (this one did), which make them a good option for steadily growing your money over time. Still, there are factors to consider before signing up for one, even for a high CD rate. Here's how I determined whether this offer was right for my situation, and why I ultimately decided that it wasn't.
1. I thought about my goals for the money
When it comes to CDs, it's important to think about the timeline. These products usually come with a set maturation date. This one was a 1-year CD. In other words, if I needed access to the money in the CD, taking it out before the 12 months was up would mean paying early withdrawal fees.
In this case, the money that we would be putting away was earmarked for (hopefully) a down payment on a second home that's closer to our out-of-state family. We'd like to be able to hop on that opportunity as soon as we see something we like. Because of that, the inflexibility of a CD made this offer not optimal for that purpose.
2. I compared it to my high-yield savings account interest
We already have several high-yield savings accounts for different purposes. One of these accounts holds the interest that we are currently accruing from an already opened CD. These accounts currently have a 4.75% APY, though that APY could change.
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At 5.30%, the CD did offer a higher interest rate, by 0.55%, to be exact. But that difference was negligible and would only really make a difference if you put a significant amount of money away.
3. I considered what was happening with my current CD
As I mentioned earlier, we already have one CD that holds some cash we're hoping to use for the house down payment. That CD has an APY of 4.21% and a maturation date of February 4, 2024.
The new CD offered a higher rate (1.09% higher, to be exact), so opening a second CD with this higher rate could be beneficial, depending on the other factors.
4. I considered my emergency savings
Like I mentioned above, we have several high-yield savings accounts already, one of which holds our emergency fund. These funds add up to approximately seven months' worth of our expenses at the 4.75% rate.
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To fund a new CD, we'd need to take some cash from our emergency savings to open it. Pulling money from our current CD to put into the new one would mean paying those early withdrawal fees. Other accounts, like my tax account, need to stay put — it holds cash that I need to make quarterly tax payments as a freelance writer.
Making the most of the interest would mean pulling out at least a couple thousand dollars, and with three kids, a job as a freelancer, and a high-deductible health insurance plan, I want more easily accessible cash in that account, not less.
Even though the new CD offer had a few key things going for it, at the end of the day, the difference wasn't enough in my mind to warrant pulling money from our emergency savings to open it. If we had more disposable income to work with, we might have gone for it.
For now, though, I'm happy with what we've got, and I look forward to figuring out what to do with our current CD once we reach our maturation date in just a couple of months.
Cheryl Lock is a personal-finance writer whose work has appeared in Woman's Day and Parents as well as online at USA Today, Forbes, and MarketWatch. She lives in Denver with her husband and two daughters. Follow her on Twitter at @CMLock42 and on LinkedIn.
