Benefits of Opening a 1-Year CD

With the New Year around the corner, it’s a natural time to set new financial goals for the future. Some might be long-term, like planning for retirement or saving for a down payment on a house. But you can also set shorter-term goals for things that you can achieve in just one year. If that’s the case, you might consider the benefits of opening a 1-year certificate of deposit.

The Basics

CDs tend to enjoy better rates than savings and money market accounts. In other words, they help your money grow more quickly. What’s unique about a 1-year CD? The answer comes down to its advantageous rates and timing.

According to, 1-year CDs can be attractive to savers because their rates are usually higher than 3-month or 6-month CDs, yet you still have access to your money in just one year. While you can withdraw money from a CD at any time, if you do so before it matures you typically receive a penalty (Ally’s No Penalty CD is an exception). These benefits make a 1-year CD especially useful for certain kinds of goals.

Benefits for Short-Term Goals

There are certain things in life that you know you will be purchasing in a year’s time. For example, you may already know that you want to go on a vacation just after next year’s holidays. Or you might have plans to buy a new car sometime in the following spring. Another common goal that you can plan for a year ahead of time is a big life event, such as a wedding.

These are the kinds of goals that a 1-year CD can help you achieve. And, of course, your funds will have been growing at a better rate than they likely would have in most savings or money market accounts.

Benefits for Long-Term Goals

If your savings strategy looks ahead more than a year, a 1-year CD can still play a role. For example, you might incorporate a 1-year CD into a CD laddering plan. This is a strategy that initially combines shorter and longer-term CDs into a single savings plan. The longer-term CDs typically enjoy higher rates, while the shorter term CDs provide quicker access to your money. If you’re looking to start a CD ladder, it’s smart to include a 1-year CD in the plan.

Regardless of what you may be saving for, there are plenty of CDs – including those with longer terms – that can help make the most of your money. If you start with a plan, you’re already on your way to achieving your 2014 goals.

What big purchases are you expecting to make around this time next year? Do you have a CD ladder or plan to add a one-year CD to your savings plan?

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