It is never too early to think about putting money away for the future. The earlier you plan, the more money will be at your disposal whenever you decide to retire. As a young person, you can put away more money before the family comes along. When planning for retirement, consider CD’s as a way to save money.
No, we are not talking about compact discs. CD’s are Certificates of Deposit. They are a low risk investment for anyone wanting to save some money. They function much like a savings account at a bank or credit union.
The money that you set aside yields a certain interest rate over time. CD’s can be opened for any amount of money. The time that the money is held in the CD is also variable. The more money that you deposit and the longer the time frame, the higher the interest rate will be for you.
A CD is one way to give a bank more funds at their disposal. You, the consumer, put your money into a CD for five years. During that period the bank can use those funds to loan money to other customers. As a reward for allowing them to use your money, they give you a higher interest rate on your investment.
It is always better to keep the money in a CD as long as you can. Once a CD reaches maturity, you can remove the money and put it into another investment vehicle or roll it into a new CD. Most banks give you a certain amount of time after the CD matures to decide what you want to do with the money.
CD’s are a good retirement option because they are safer than some other options. For seniors and those approaching retirement age, CD’s are a good way to maintain the status quo. As you get older, the risk you want to take with your investments usually starts to lessen. No one wants to take a big gamble with all of their retirement funds when they are five years from retirement. As a twenty-something it is understandable to increase the risk of your investments for that big return, because you have time to recoup your losses.
People who have achieved a comfortable level of savings for retirement can use CD’s to protect that money and still earn some interest on it. Their money isn’t growing as much anymore, but they can also afford to tie up their funds in a ten year CD. A younger person may need that money, so they may benefit more from another investment vehicle like a money market account where they can access their funds if they need them.
CD’s are useful to all people saving for retirement, but more useful for those who have already taken the risks and hit the big return. Now their money can be secured until they need it.