OK, you managed to collect some savings by mowing the lawn or working at McDonald’s. It is really cool, congrats. But before you rush to invest all the money into a Certificate of Deposit, let us talk about reality. Actually, storing your cash in a CD may not be such an effective way as it seems at first.
At first, you need to know how the bank uses your funds in the case of a CD. You give the bank your money, and it keeps them in its virtual safe up to the end of the term. In exchange, you receive interest, which is some bonuses for letting the bank use your money. You may regard it as lending your game console to a friend, who gives you a dollar for this favor once a week.
The problem with a CD is that you cannot take any money out of it before the end of the term, otherwise, you would have to give the bank some extra money. It is a really tough condition, which will surely disappoint you, so better to think about investing only those resources, which you do not plan to use in the near future.
In order to determine whether a certain Certificate of Deposit will provide you with the best interest rates, you should compare the conditions of different banks. Traditional banks hardly ever have interesting offers, so better to stick with online banks such as Marcus or Ally since they spend less money on maintaining physical offices. The thing to pay attention to is APY (Annual Percentage Yield), as it represents the actual amount of your earnings.
The other important feature to compare is the duration of the term. The six months certificate is unlikely to pay as much dividend as the five-year one, but your money will be available to you sooner. The point is that short-term options are more beneficial for high school students because their lives change unpredictably during the term period.
Unfortunately, there is one sad but inevitable truth – despite the decent interest rate, the value of CD rates lowers due to the inflation. So, even the best certificate is only able to ensure your safety, but not prosperity.
Thus, you see that a High-Yield Savings Account may be a more suitable solution for your case. There is not that much difference between them, however, there is one big advantage of the latter option – the lack of lock-in period.