CDs For Diverse Savings Goals

For planned savings, certificates of deposit (CDs) are a great option. They allow you to earn a great return on your money. If you're planning on buying a house or a car, keeping your down payment in a CD can help it grow toward your goal faster.

What if you're saving for both of those things and something else? Let's look at two ways to solve this problem and consider the pros and cons of each.

Lump It All Together

One option would be to put all your savings into one CD. You'd take your house down payment, car funds, and vacation savings money and put them all in a single CD. This strategy is simple.

The good: First, there's only one account to track. You'll only have one document showing the dividends earned at tax time. Sometimes, larger amounts make better rates, so lumping all your money together can improve your return over the long haul.

The bad: Because all the money is in one pot, it can be challenging to determine how close you are to each goal. You're also stuck on the time frame of your shortest-term goal. If you want to buy a car six months from now, you can only get a six-month term to save for everything, including the house, which you may not be planning on buying in six months. That short-term rate may not be as good as you could otherwise, but you should always check CD rates to confirm. 

The bottom line: If all your savings goals are on a similar time frame, or if simplifying your financial life is your foremost priority, a single CD for all your savings is a good idea.

Separate CDs for Different Goals

You can open multiple CDs for each of your goals - one for your car down payment, one for your house savings, and one for your vacation fund. These would all be held in different CDs and earn interest separately.

The good: Instead of keeping all your money tied to the term of your shortest goal, you can stagger your terms to meet the individual needs of each goal. This will allow you to make more strategic withdrawals when you need the money. Dividend rates change over time, so multiple CDs will enable you to avoid the risk of missing better rates since you have more opportunities to re-lock rates.

The bad: The different interest rates on the CDs can make figuring your earnings difficult, and multiple accounts can create confusion when tax filing time arrives. Multiple accounts could also potentially prevent you from accessing the most favorable dividend rates, typically reserved for larger balances. Therefore, it's essential to remember the importance of checking current CD rates to ensure well-informed decisions.

The bottom line: Multiple CDs offer a combination of flexibility and security that would be helpful for those with a diverse range of goals. 

Regardless of your financial strategy, CDs can play a vital role in simplifying your savings. If you'd like to discover how CDs can help you achieve short-term or long-term goals, don't hesitate to contact us today or click here to learn more about CDs.