How much to save in CDs

Regardless of whether you're saving for retirement, growing your nest egg, or putting money away for your next vacation, certificates of deposit (CDs) can provide a great way to earn predictable returns on your cash.

That being said, the question remains: how much should you be saving in CDs? While it can vary greatly depending on your personal situation, this guide can help you decide whether a CD is right for your needs, how much to put into a CD, and learn how to get started.

Deciding how much to invest in a certificate of deposit (CD) requires carefully considering your overall financial strategy, investment goals, and liquidity needs.

Evaluate your financial goals before determining how much to invest in a CD. Are you saving for a short-term goal, like a vacation or a down payment on a house? Or are you looking for a secure, long-term investment? CDs are generally best for short- to medium-term goals due to their fixed terms and penalties for early withdrawal.

CDs are low-risk investments with guaranteed returns, making them an excellent choice for conservative investors. If you prefer safety over potentially higher returns from stocks or mutual funds, you might allocate a larger portion of your savings to CDs.

Since withdrawing from a CD before its maturity date can result in penalties, ensure you have enough liquid assets in savings or other accessible accounts to cover emergencies and everyday expenses. A common strategy is to keep three to six months' worth of living expenses in an emergency fund before locking away money in a CD.

• Guaranteed returns: One of the primary benefits of CDs is the guarantee of returns. Unlike stocks or mutual funds, the return on a CD is fixed, meaning you know exactly how much you will earn by the end of the term. This predictability can be reassuring, especially during volatile market conditions.
• Diversification of investments: Including CDs in your investment portfolio can enhance diversification. While stocks and bonds are subject to market fluctuations, CDs can provide stability. This balance can protect your portfolio against significant losses and provide a steady income stream.
• No-penalty options via Raisin: Raisin’s partner banks and credit unions offer a variety of CD options, including no-penalty CDs, which allow you to withdraw your funds prior to maturity without incurring a penalty. This flexibility makes CDs an attractive option for those who want to earn a fixed interest rate without sacrificing liquidity.

The typical minimum balance for a certificate of deposit varies by financial institution. Here are some common scenarios:

• Traditional banks and credit unions: Many traditional banks and credit unions require a minimum deposit ranging from $500 to $1,000. These institutions often have stricter requirements but may offer a variety of CD terms and interest rates.
• Online banks: Online banks often provide more flexibility with lower minimum deposits. It's not uncommon to find online CDs with minimum deposits of $100 to $500, making them more accessible to a broader range of investors.
• Specialty CD products: Some banks offer specialty CDs, such as Jumbo CDs, which can require a minimum deposit of $100,000 or more. These CDs often come with higher interest rates but are intended for investors with substantial funds.
• Raisin: The Raisin savings platform allows savers to open CDs across a network of banks and credit unions with a minimum deposit of just $1. This low starting investment can make it easy for both new and experienced investors to explore the benefits of CDs without committing a large sum of money.

The typical balance for a CD account depends on the investor's financial goals and savings strategy. Here are a few considerations:

• Short-term savings: For short-term savings goals, such as saving for a vacation or a small home improvement project, investors might open CDs with smaller balances, typically ranging from $1,000 to $25,000.
• Long-term savings: For long-term goals, such as retirement or a child's education fund, investors might choose to allocate larger sums to CDs, with balances exceeding $50,000.

The amount you should initially deposit into a CD depends on your financial situation and investment goals. If you're new to CDs, starting with a smaller amount can help you understand how they work without committing too much capital. As you become more comfortable, you can consider larger deposits or multiple CDs to take advantage of different interest rates and terms.

• Traditional CDs: With traditional CDs, you cannot add funds after the initial deposit. The interest rate and term are fixed at the time of opening, and any additional funds would require opening a new CD.
• Add-on CDs: Some banks offer add-on CDs, allowing you to make additional deposits during the term. These products can be beneficial if you expect to receive extra funds (e.g., a tax refund or bonus) and want to increase your investment without opening a new CD.

• Percentage of your portfolio: A common recommendation is to allocate 10-20% of your investment portfolio to CDs. This percentage can vary based on your age, risk tolerance, and financial goals. Younger investors with a higher risk tolerance might allocate less to CDs, focusing more on growth investments. On the other hand, retirees or those nearing retirement might allocate more to ensure a steady income.
• Laddering strategy: To maximize returns and maintain liquidity, consider a CD laddering strategy. This involves opening multiple CDs with different maturity dates. For example, instead of investing $50,000 in a single 5-year CD, you could invest $10,000 each in CDs maturing in 1, 2, 3, 4, and 5 years. This way, you have access to a portion of your funds each year, and as each CD matures, you can reinvest in a new 5-year CD to benefit from potentially higher interest rates.

Raisin's savings platform features $1 minimum deposit CDs, providing an excellent opportunity for new investors or those with limited funds to start saving. This low barrier to entry allows you to explore the benefits of CDs without a significant financial commitment. As your confidence and savings grow, you can increase your investments in these or other CD products offered through Raisin.

Determining how much to put in a CD depends on your financial goals, risk tolerance, and liquidity needs. CDs offer guaranteed returns and enhance portfolio diversification, making them a valuable addition to any investment strategy.

Platforms like Raisin provide flexibility with no-penalty options and low minimum deposits, making it easier than ever to start saving in CDs. Whether you're new to investing or looking to secure a portion of your savings, carefully considering your investment amount and strategy can help you make the most of CDs.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.